Chapter 04 - Systems Design: Process Costing

4-1

Chapter 04
Systems Design: Process Costing
Multiple Choice Questions
1. (Appendix 4A) Which of the following statements referring to a production
report is not
correct?
A. The quantity schedule deals with physical units, not whole units.
B. The total "Costs to be accounted for" must equal the total cost of the units
completed and
transferred out, plus the cost of the ending work-in-process inventory.
C. The equivalent units in the ending work-in-process inventory will be different if
the
weighted-average method is used than it will be if the FIFO method is used.
D. The total of the "Units to be accounted for" will equal the total of the "Units
accounted for."
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
Learning Objective: 4
Learning Objective: 6
Learning Objective: 7
Learning Objective: 8

2. Assume that there is no beginning work-in-process inventory, and the ending
work-in-process inventory is 50% complete with respect to conversion costs.
What would be
the number of equivalent units of production with respect to conversion costs
under the
weighted-average method?
A. The same as the units completed.
B. The same as the units started during the period.
C. Less than the units completed.
D. Less than the units started during the period.
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 2

Chapter 04 - Systems Design: Process Costing
4-2

3. (Appendix 4A) All production costs have been steadily rising in the Donner
Company for

several periods, and the company maintains large work-in-process inventories.
What is the
Donner Company's cost per equivalent unit, as computed using the FIFO
method?
A. The same as that computed under the weighted-average method.
B. Higher than that computed under the weighted-average method.
C. Lower than that computed under the weighted-average method.
D. It could be the lower than, the same as, or higher than that computed under
the
weighted-average method.
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 3
Learning Objective: 7

4. (Appendix 4A) If a company uses two different unit cost figures to cost
transfers from one
department to another under a process costing system, then which of the
following statements is
reasonable to assume?
A. There was no beginning work-in-process inventory.
B. Processing centres are arranged in a sequential pattern.
C. The FIFO cost method is being used.
D. The weighted-average cost method is being used.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 5
Learning Objective: 8

6. Which of the following statements best defines an operation costing system?
A. It is identical to a process costing system except that actual manufacturing
overhead costs
are traced to units of product.
B. It is the same as a process costing system except that direct materials costs
are accounted for
in the same way as in job-order costing system.
C. It is the same as a job-order costing system except that direct materials costs
are accounted
for in the same way as in a process costing system.
D. It is identical to a job-order costing system except that actual manufacturing
overhead costs

7. Lucas Company uses the weighted-average method in its process costing
system. The
company adds materials at the beginning of the process in the Forming
Department, which is
the first of two stages in its production process. Information concerning
operations in the
Forming Department in October follows:
What was the materials cost of work in process on October 31?
A. $3,060.
B. $5,520.
C. $6,000.
D. $6,120.
EI = 6,000 + 50,000 - 44,000 = 12,000 units * $28,560/56,000 = $6120.
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
Learning Objective: 4
Learning Objective: 5

Chapter 04 - Systems Design: Process Costing
4-4

8. David Company uses the weighted-average method in its process costing
system. The first
processing department, the Welding Department, started the month with 20,000
units that were
80% complete with respect to conversion costs. The conversion cost in this
beginning
work-in-process inventory was $123,200. An additional 65,000 units were started
into
production during the month. There were 19,000 units in the ending work-inprocess inventory
of the Welding Department that were 10% complete with respect to conversion
costs. A total of
$389,250 in conversion costs were incurred in the department during the month.
What would be the cost per equivalent unit for conversion costs for the month?
(Round off to
three decimal places.)
A. $7.547.
B. $7.700.
C. $4.634.
D. $5.988.
EU = 66,000 + 19,000 *.1 = 67,900. Cost/EU = (132,200 + 389,250)/67,900
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 2
Learning Objective: 3

Chapter 04 - Systems Design: Process Costing
4-5

9. Larner Company uses the weighted-average method in its process costing
system. Operating
data for the first processing department for the month of June appear below:
According to the company's records, the conversion cost in beginning work-inprocess
inventory was $68,064 at the beginning of June. Additional conversion costs of
$585,324 were
incurred in the department during the month.
What was the cost per equivalent unit for conversion costs for the month?
(Round off to three
decimal places.)
A. $5.575.
B. $6.174.
C. $6.892.
D. $7.090.
($68,064 + 585,324)/(91,000 + 19,000 * 20%)
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 2
Learning Objective: 3

13. Baker Company uses the weighted-average method in its process costing
system. The
Assembly Department started the month with 8,000 units in its beginning work-inprocess
inventory that were 90% complete with respect to conversion costs. An additional
95,000 units
were transferred in from the prior department during the month to begin
processing in the
Assembly Department. There were 11,000 units in the ending work-in-process
inventory of the
Assembly Department that were 90% complete with respect to conversion costs.
What were the equivalent units of production for conversion costs in the
Assembly Department
for the month?
A. 94,700 units.
B. 101,900 units.
C. 98,000 units.
D. 92,000 units.
92,000 + 11,000 *.9 = 101,900

15. Sarver Company uses the weighted-average method in its process costing
system. The
Fitting Department is the second department in its production process. The data
below
summarize the department's operations in March:
The Fitting Department's production report indicates that the cost per equivalent
unit for
conversion cost for March was $8.24.
How much conversion cost was assigned to the units transferred out of the
Fitting Department
during March?
A. $482,287.20.
B. $502,640.00.
C. $523,240.00.
D. $561,144.00.
(7,100 + 61,000 - 4,600) * $8.24
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 4

Chapter 04 - Systems Design: Process Costing
4-10

16. The Nichols Company uses the weighted-average method in its process
costing system. The
company recorded 29,500 equivalent units of production for conversion costs for
November in
a particular department. There were 6,000 units in the ending work-in-process
inventory on
November 30, 75% complete with respect to conversion costs. The November 1

work-in-process inventory consisted of 8,000 units, 50% complete with respect to
conversion
costs. A total of 25,000 units were completed and transferred out of the
department during the
month. What was the number of units started during November in the
department?
A. 24,500 units.
B. 23,000 units.
C. 27,000 units.
D. 21,000 units.
25,000 + 6,000 - 8,000 = 23,000 started.
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2

17. The Assembly Department started the month with 35,000 units in its
beginning
work-in-process inventory. Additional units 472,000 were transferred in from the
prior
department during the month to begin processing in the Assembly Department.
There were
34,000 units in the ending work-in-process inventory of the Assembly
Department. How many
units were transferred to the next processing department during the month?
A. 507,000 units.
B. 473,000 units.
C. 471,000 units.
D. 541,000 units.
35,000 + 472,000 - 34,000
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 1
Learning Objective: 2

Chapter 04 - Systems Design: Process Costing
4-11

18. Huffer Company uses the weighted-average method in its process costing
system. The
following information pertains to Processing Department D for the month of May:
All materials are added at the beginning of the process. Which of the following
costs is closest
to the cost per equivalent unit for materials?
A. $0.43.
B. $0.45.
C. $0.55.
D. $0.59.
($11,000 + 36,000)/(85,000 + 25,000)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
Learning Objective: 3

Chapter 04 - Systems Design: Process Costing
4-12

19. Harker Company uses the weighted-average method in its process costing
system. The first
processing department, the Welding Department, started the month with 16,000
units in its
beginning work-in-process inventory that were 40% complete with respect to
conversion costs.
The conversion cost in this beginning work-in-process inventory was $29,440. An
additional
59,000 units were started into production during the month, and 61,000 units
were completed in
the Welding Department and transferred to the next processing department.
There were 14,000
units in the ending work-in-process inventory of the Welding Department that
were 10%
complete with respect to conversion costs. A total of $246,400 in conversion
costs were
incurred in the department during the month.
What would be the cost per equivalent unit for conversion costs for the month?
(Round off to
three decimal places.)
A. $4.176.
B. $4.600.
C. $3.375.
D. $4.421.
EI = 16,000 + 59,000 - 61,000 = 14,000 units.
Cost/EU = ($29,440 + 246,400)/(61,000 + 14,000 *.1) = $4.4205
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
Learning Objective: 3

Chapter 04 - Systems Design: Process Costing
4-13

20. Paxton Company uses the weighted-average method in its process costing
system. The
Moulding Department is the second department in its production process. The
data below
summarize the department's operations in January:
The accounting records indicate that the conversion cost that had been assigned
to beginning
work-in-process inventory was $10,973, and a total of $268,107 in conversion
costs were
incurred in the department during January.
What was the cost per equivalent unit for conversion costs for January in the
Moulding
Department? (Round off to three decimal places.)

000 units. $95. By what amount would the equivalent units of
production for
conversion costs for the month of November differ if the FIFO method were used
instead of the
weighted-average method?
A.400.100.400*.600.75 for
materials and
$4.000. If the cost per equivalent unit for August was $2. $126. 1 that were 100% complete with respect to material costs and
20% complete
with respect to conversion costs.
The work in
process on November 30 was 100% complete with respect to material costs and
40% complete
with respect to conversion costs.
18.000 units were started in
Department
No.A.75 + 18.300 + 9.400
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
Learning Objective: 4
22.704. The units in the ending workin-process
inventory were 100% complete with respect to materials and 60% complete with
respect to
labour and overhead. (Appendix 4A) On November 1. 2.Systems Design: Process Costing
4-14
21.107)/(50.6*$4.000 units of work
in process in
Department No. 160. Yankee Company had 20.
D.973 + 268. $5.2)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
Learning Objective: 3
Chapter 04 .000 units were completed and transferred to Department No. During November.000*. $4.
D.
($10. The company's ending
work-in-process
inventory on August 31 consisted of 18.
.
C.348. 20.000 decrease. 1. $75.25 = $95. what was the total cost assigned to the ending
work-in-process
inventory?
A. $4.038.
C. and 170.
B. $80.25 for labour and overhead.
B.080.
The company has only a single processing department. $5.000*$2. The Richmond Company uses the weighted-average method in its process
costing system.

400.800. Ogden Company uses the weighted-average method in its process costing
system. The costs per equivalent unit for the period were $2.00 for
conversion costs.Chapter 04 . The cost of the beginning work-in-process inventory in the department was
recorded as
$10.000. The ending work in process
is 50%
complete with respect to conversion costs.
B.
B. During the period.
Information for the month of January concerning Department A. $6. $35.00 for material
and $3. follows:
Materials are added at the beginning of the process.
C.000 * $0. $3. What was the cost of units transferred out during the month?
A. $45. the first stage of
the company's
production process.000 units were completed and transferred on to the
next
department.40
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 4
Chapter 04 .
10. 9.
D.000 units that
were 70% complete with respect to materials and 60% complete with respect to
conversion
costs.600.000 * ($2 + $3)
. The
beginning work-in-process inventory in its Painting Department consisted of
3. Trapp Company uses the weighted-average method in its process costing
system. What cost would be recorded for the
ending
work-in-process inventory?
A.400. $39.5 * $0. $45.
9.Systems Design: Process Costing
4-21
30.400.
D.400. $8.48 + 10.000.800.
C.000 *.Systems Design: Process Costing
4-20
29. $4.

The
Moulding Department is the second department in its production process.20. $6.000
(38.00. $10.
.000 EU for conversion costs therefore 2/10 = 20%
complete. 10.Systems Design: Process Costing
4-22
32.30.
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 2
Learning Objective: 4
Chapter 04 .
How much conversion cost was assigned to the ending work-in-process
inventory in the
Moulding Department for January?
A.203.
EI cost of material.
C.40.000 . With respect to conversion costs. 60% complete with respect to materials.121.37. The total dollar value of
this inventory
is $38. 38% complete. The ending work-in-process
inventory consists
of 10. $4.000)/$4/EU = 2.310.000.
B.000 units. The
company has only one processing department.000 *.80. 30% complete. 20% complete.6 * $5 = $30. Strap Company uses the weighted-average method in its process costing
system. The
data below
summarize the department's operations in January:
The Moulding Department's production report indicates that the cost per
equivalent unit for
conversion cost for January was $5.00 for
conversion costs
for the period.00 for materials and $4.081. 10% complete. $10. The costs per equivalent unit are $5. what is the ending work-inprocess inventory?
A.Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 4
31. Rariton Company uses the weighted-average method in its process costing
system.
B.
D.
D.
C.

057.000*.22.
C.
D.
B.3) = $9.085 in
conversion costs were
incurred in the department during the month.000 . (Appendix 4A) Ebis Company uses the FIFO method in its process costing
system.)
A.000 are
from beginning
inventory. $9.1.4 * $5.000
units in its
beginning work-in-process inventory. A total of $806.085/(13.000 + 89.9 + 67.000*1 + 22.000 units were started into production during the month. $9. $8.000 = 80.
An additional 89.
What would be the cost per equivalent unit for conversion costs for the month on
the
department's production report? (Round off to three decimal places.450. started the month with 13. $9.000 units of which 13.Systems Design: Process Costing
4-23
33. 30% of
these units
were complete with respect to conversion costs. $806.45
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 6
Learning Objective: 7
. The first
processing department.000
units in the ending work-in-process inventory of the Welding Department.026.
Transferred out = 13.000*. The conversion cost in this beginning work-in-process
inventory was $12.37
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
Learning Objective: 4
Chapter 04 .610. 10% of the units were complete with
respect to
conversion costs. the Welding Department.900 *.700. There
were 22.

The
beginning work-in-process inventory in a particular department consisted of
6.500. $5. Additional conversion
costs of $427.682/(19.Systems Design: Process Costing
4-24
34.9) = $5.
B.
$427.
two-thirds complete with respect to conversion costs.62
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 6
Learning Objective: 7
Chapter 04 . (Appendix 4A) Herston Company uses the FIFO method in its process
costing system. $5.779.000*1 + 17.682
were incurred in the department during the month. (Appendix 4A) Marten Company uses the FIFO method in its process costing
system.
C.
D.2 + 57.498.
What would be the cost per equivalent unit for conversion costs for September
on the Casting
Department's production report? (Round off to three decimal places.
Operating data for the Casting Department for the month of September appear
below:
According to the company's records.Chapter 04 .620. 42. $5.000*. During the month.Systems Design: Process Costing
4-25
35.000 units.000
units were
. $5. the conversion cost in beginning work-inprocess
inventory was $83.600 at the beginning of September.)
A.000*.

Of the 8.000/8. 50% complete with respect to conversion costs.000 =
36. 25% complete with respect to conversion costs. 8.000*. The
Assembly Department started the month with 6.
B.
EU = 6. 60% were complete with respect to
conversion costs.000*.40.000 units. EI consists of 6.6 = 75.8 + 66.
Total EU was 40.
D.000 units.000 + 42.
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 6
36.600 units.000 equivalent units of production for conversion costs.000 units in its beginning work-inprocess
inventory. 8.
C.000 .000 .000*1/3 + 34. An
additional
74. From transferred out the EU = 6.000 EU in EI.36.
D.000*1 + 8.started and 40. 20% of the units were complete with respect to conversion costs.000 units.000 + 74.600
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 6
.8.000 units were transferred in from the prior department during the month to
begin
processing in the Assembly Department.000 units.000 = 4.000 .000 units.
What were the equivalent units of production for conversion costs in the
Assembly Department
for the month?
A. 76. 76.
The company
had 40. Which of the
following
represents the ending work-in-process inventory in the department?
A. 75.000 EU therefore
40. 100% complete with respect to conversion costs. 72. 4.000).
C.000. (Appendix 4A) Carson Company uses the FIFO method in its process costing
system.000 units in the ending work-inprocess
inventory of the Assembly Department.000 = 72.000 = 8. 0 units.800 units.000 units were completed and transferred out of the department.
B.000
units 50%
complete (4.
6.000 transferred out.

Trans. 85.Systems Design: Process Costing
4-26
37. 85.960 units.6 + 78.000 units.
Operating data for the Enamelling Department for the month of May appear
below:
What were the equivalent units of production for conversion costs in the
Enamelling
Department for May?
A. 80. The January 1 work-in-process inventory in Department A
contained $10. (Appendix 4A) Creer Company uses the FIFO method in its process costing
system.8.800 units.
C.
D.800 units of which 2.000 .400 come from BI.
B.
Department A had 20.000 in
materials cost and $11.000 units in process at the beginning of January. During January.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 6
Chapter 04 .400*1 + 8.
EU = 2. 93.50 per
. materials costs
were $0. (Appendix 4A) Karmen Company uses the FIFO method in its process
costing system.400 + 87.6 = 85. and 40%
were complete
with respect to conversion costs.400*.Chapter 04 .200 units.600 = 80.600*. Out = 2.Systems Design: Process Costing
4-27
38.600 in conversion cost. All materials are added at the beginning of the
process in
Department A.

000.50 = $18. $39. $45.
C. (Appendix 4A) Mukluk Company uses the FIFO method in its process costing
system.50 per equivalent unit.600 = $21.000 for a total of $39.
D.
What was the total cost attached to these units when they were transferred to the
next
department?
A. $3.000 units were in
process.000 + 11.600
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 6
Learning Objective: 8
39.equivalent unit.000 *. and conversion costs were $1.
$2. $37.600.600.7*$5 = $5.
B. At the beginning of the month.400 + 1. $8.600. $33.600
Cost to complete these units = 20.900
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 6
Learning Objective: 8
Chapter 04 .
BI = $10. $5. The
.Systems Design: Process Costing
4-28
40.000*.
C.600. and 100%
were complete with respect to materials and 30% were complete with respect to
conversion.900. The
conversion cost for the month of April is $5. 1.00 per equivalent unit. All of the
units in the
beginning work-in-process inventory were completed and transferred out during
the month. If these units are fully complete by the
end of the month.900.500.
with a total cost at that point of $2. $3.
D.
what will be their total cost?
A. and the
materials cost is
$2.400.6 * $1.90 per equivalent unit. (Appendix 4A) Index Company uses the FIFO method in its process costing
system.
B.

010.000*1 + 10.000 units were started into production during the month.9 + 66. Additional conversion costs of
$129. $5.000 units in the
ending work-in-process inventory of the Forming Department. started the month with
17. $5.300. An
additional 76.
D.
What would be the cost per equivalent unit for conversion costs for the month on
the Forming
Department's production report? (Round off to three decimal places.
C.000 units in its
beginning work-in-process inventory. There were
10. (Appendix 4A) Qart Company uses the FIFO method in its process costing
system.)
.050.960 were
incurred in the department during the month.7) = $5.867.
$445.
What would be the cost per equivalent unit for conversion costs for March on the
Cutting
Department's production report? (Round off to three decimal places. the conversion cost in beginning work-inprocess
inventory was $1. the Forming Department.000
units were
completed and transferred to the next processing department. 70% of the units
were complete
with respect to conversion costs.150. $5.05
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 6
Learning Objective: 7
Chapter 04 .Systems Design: Process Costing
4-29
41.915/(17. the units were 10% complete with respect
to conversion
costs.000*.656 at the beginning of March.)
A.915 in conversion costs were
incurred in the
department during the month.
Operating data for the Cutting Department for the month of March appear below:
According to the company's records. $5.
B. and 83.000*. A total of $445.first processing department. The conversion cost in this beginning work-in-process inventory was
$9.

During the month. 336.
C.000 units.
Department One is the first stage of the company's production process.000*.000 units were transferred to the next
processing center during
the month.
. At the
end of the
month. 6.000*1 + 20.
5. what would be the equivalent units of production for conversion
costs?
A. 352.000 units that were 60%
complete with
respect to conversion costs.000 units in its beginning work-inprocess
inventory. 13.
40.6 + 300.the beginning of March.700 units. 360.700 units. 10.000 units.Systems Design: Process Costing
4-32
45.
D.
B.000*.6
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 6
44.6
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 6
Chapter 04 . 10% of the units were complete with respect to conversion costs. the work-in-process inventory in the Blending Processing
Center
consisted of 5. The
following
information pertains to conversion costs for April for Department One:
What are the equivalent units of production for conversion costs?
A.000*1 + 2.000*. 90% complete with respect to conversion costs. The
Grinding Department started the month with 18.300 units. 11.000 units. (Appendix 4A) Winder Company uses the FIFO method in its process costing
system.
B.000*.
D.
C.1 + 5. If 10. the work-in-process inventory consisted of 2. (Appendix 4A) Garson Company uses the FIFO method in its process costing
system.000 units. 320.000 units.000 units.

3.
Operating data for the Brazing Department for the month of November appear
below:
What were the equivalent units of production for conversion costs in the Brazing
Department
for November?
A.200 units.000*.9 + 97. 113. 49.2
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 6
Chapter 04 .
C.400*1 + 7.400 units. 43.8
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 6
. (Appendix 4A) Oxyrom Company uses the FIFO method in its process
costing system.000 units were
completed in the
Grinding Department and transferred to the next processing department.800*.Systems Design: Process Costing
4-33
46.200 units.
18. During the month.300*. 115. 115.000 units.an additional 98.000 units. 81.000*. 115.8 + 39.
D.000*1 + 1.000 units in
the ending work-in-process inventory of the Grinding Department.000 units were transferred in from the preceding department to
begin
processing in the Grinding Department.
D.200 units.280 units.
B. What were the equivalent units of production for
conversion costs
in the Grinding Department for the month?
A.040 units.
B. 50.
C. 20% were
complete with
respect to conversion costs. 48. Of the
1.

090.
The Forming
Department processes the baseball bats. the conversion cost in beginning work-inprocess
inventory was $7.9*$8.
How much conversion cost would be assigned to the units completed and
transferred out of the
department during March?
A.
B.470 at the beginning of March. $533.Chapter 04 .000*$8.
C.
D.000*.
$7.
Operating data for the Curing Department for the month of March appear below:
According to the company's records.530.20.Systems Design: Process Costing
4-35
A sporting goods manufacturer buys wood as a direct material for baseball bats.470 + 9. $525. and the bats are then transferred to the
Finishing
Department where a sealant is applied.20 + 56.Systems Design: Process Costing
4-34
47.20
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 6
Learning Objective: 8
Chapter 04 .040. The cost per equivalent unit for
conversion
costs for March was $8. There was no beginning work-in-process
inventory in
the Forming Department in May. $592.000 Casey
. The Forming Department began manufacturing
10.000. (Appendix 4A) Tarten Company uses the FIFO method in its process costing
system. $533.

145.
Chapter 04 . Since materials are all
added at
beginning of process then all units 125. The October 31
work-in-process
inventory in the Mixing Department consisted of 4. The cost per equivalent unit was $2.000 units.following information for the Assembly Department was obtained from the
accounting records
for September (all materials are added at the beginning of the process):
Chapter 04 .
D.000 + 320.000 units. 122.000.40. During
October.500. What are the equivalent units of production for material for the month?
A. $429. $41.000 units.000 + 16.000 equivalent units of
material and 5.000 units.000 + 105.000.
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
Madsen Company uses the weighted-average method in its process costing
system. The "Total cost to be accounted for" section of the production report for the
month will
show an amount equal to which of the following?
A.000 + 63.
B.50
for materials
and $6.000 .
.000 are 100% complete as to
material.000. the Mixing Department transferred out 40.
C. $604.
Transferred out = 60.500. What was the total cost of the October 31 work-in-process inventory?
A.000
equivalent units of labour and overhead.250.
B.25 for labour and overhead.Systems Design: Process Costing
4-38
52. 105.000 + 40.
D.
$30. 165.000 = 125. $106.
C.000 units. $498.Systems Design: Process Costing
4-37
50.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 5
51.

16. (Appendix 4A) Using the FIFO method. The ending work-in-process inventory
was 90%
complete with respect to materials and 40% complete with respect to conversion
costs.
D.600 units. 107.400 units. The following information pertains to operations for the month of
May:
The beginning work-in-process inventory was 60% complete with respect to
materials and 20%
complete with respect to conversion costs. (Appendix 4A) Using the FIFO method. The company uses a process costing system and has only a single
processing
department.200 units.4
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 6
74.
.12. (Appendix 4A) Using the FIFO method.Systems Design: Process Costing
4-48
72. 108. 85. The
costs were as follows:
Chapter 04 .
16.800 units.50.000 + 24.000 + 24.000*.000*.
D.
C. 98. 104.400 units.000 units.000*. 82.200 units.000*. $4.
C.
B.
B. 88. the cost per equivalent unit of
materials for May is
closest to which of the following?
A. $4. what are the equivalent units of
production for
conversion costs for May?
A. what are the equivalent units of
production for
materials for May?
A.000 units.
B.4 + 76.8 + 76.9
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 6
73. 95.industry.

C.
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 6
Chapter 04 . (Appendix 4A) What are the equivalent units of production for labour and
overhead for the
month?
A.
B.
B. 95.000 units.Systems Design: Process Costing
4-55
86. 54. 60.500 units.000*1 + 20.Chapter 04 . 75. (Appendix 4A) What are the equivalent units of production for material for the
month?
A.
D. Eve Company uses the weighted-average method in its process costing
system. 59.
D.000*0 + 40.Systems Design: Process Costing
4-54
84.500 units.000 units. 54.000 units.000 units.
15.000 units.000 units.
C. 50. The
following information for the Assembly Department was obtained from the
accounting records
for September (all materials are added at the beginning of the process):
What unit cost (rounded to the nearest cent) was used in calculating the total
cost of labour and
overhead included in the Work-in-process inventory on September 1?
.000*1
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 6
85. 60.

000 * ($4.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 10
Learning Objective: 11
Learning Objective: 9
.160. (Appendix 4B) Which of the following statements about reciprocal service
department
costs is correct?
A.200
B. They are allocated to producing departments under the step-down method but
not allocated
to producing departments at all under the direct method.9) = $4.Systems Design: Process Costing
4-58
91.Chapter 04 . Suppose the company used the weighted-average method.000
C.
Cost/EU Material = $522.00
Units completed and transferred out = 92. They are allocated to producing departments under both the direct and stepdown methods. $1. They are not allocated to producing departments under either the direct or the
step-down
methods.000 + 24. What amount
would have been
credited to the Work-in-process inventory for the units completed and transferred
out during the
month of May?
A. $1.600/(92. They are allocated to producing departments under the direct method but not
allocated to
producing departments at all under the step-down method. $423.000 + 24.000*.975.4) = $6. Cost = $609.
D. $552.560/(92.132.60
Cost/EU conv.60 + $6)
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2
Learning Objective: 3
Learning Objective: 4
92.
B.000*.200
D.
C.

(Appendix 4B) Grant Company has several service departments that provide
services to
each other as well as to operating departments within the company. and it is therefore considered to be
the most
accurate method for allocating service department costs to operating
departments?
A.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 10
Learning Objective: 11
Learning Objective: 9
.Chapter 04 .
C. The direct method. The step-down method. The sequential method. The reciprocal method. The allocation by cost behaviour method.
D. The step-down method.
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 10
Learning Objective: 11
Learning Objective: 9
95. The direct method.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 10
94. It is a less accurate method of allocation than the direct method.
B.Systems Design: Process Costing
4-59
93.
C.
D.
D. It cannot be used when a company has more than two service departments.
C. It ignores some interdepartmental services. (Appendix 4B) Which of the following statements about the step-down
method of
allocating service department is correct?
A. (Appendix 4B) What allocation method recognizes that service departments
often provide
each other with interdepartmental services. The reciprocal method. Which
method would be
least accurate in allocating the company's service department costs?
A.
B.
B. It is a simpler allocation than the direct method.

700.000.
B. $10. what
would be the
amount of cost allocated to Engineering under the direct method?
A.
D. $8. $17.344.000. (Appendix 4B) Parker Company has two service departments—cafeteria and
engineering—and two operating departments. $8. $20.000.
D.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 9
Chapter 04 .Chapter 04 .
B. $0.000 * 40%/80%
Bloom's Level: Apply
.
$20. If these costs are budgeted at $69.Systems Design: Process Costing
4-61
97. $3.800. $3. uses the direct method to allocate service
department overhead
costs to operating departments.375. (Appendix 4B) Boa Corp.
C.
C. Information for the month of June follows:
What would be the amount of maintenance department costs allocated to
Operating Department
A for June?
A.750.Systems Design: Process Costing
4-60
96. The number of employees in each
department is
given below:
The costs of the Cafeteria are allocated to other departments on the basis of the
number of
employees in the departments.

000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 9
Chapter 04 .600.
B. $21. $24.Systems Design: Process Costing
4-62
Westmore Company has two Service Departments and two Operating
Departments. Personnel costs are allocated on the basis of number of employees.000/27.
98.
$54. How much Building & Grounds cost
would be
allocated to Operating Department A?
A.
D. $20. Predetermined
overhead rates in the
Operating Departments are calculated on the basis of direct labour hours.Systems Design: Process Costing
4-63
99. Budgeted
costs and other data relating to these departments are presented below:
The costs of Building & Grounds are allocated first on the basis of square metres
of space
occupied.903.
C.700.000.000 * 12. (Appendix 4B) Assume that the company uses the step-down method of
allocating Service
. (Appendix 4B) Assume that the company uses the direct method of allocating
Service
Department costs to Operating Departments.Difficulty: Medium
Learning Objective: 9
Chapter 04 .
The departmental
costs for the Operating Departments are overhead costs. $29.

what would be the
amount of
.000.
B. $3.000 + 252. The
costs of the
Cafeteria are allocated on the basis of number of employees.
($900.000 hrs. $3.67.
Chapter 04 .Systems Design: Process Costing
4-65
102.000*10/18 + 140.
C.000. Round all
calculations to
the nearest dollar. $112.
B.800. $18.
C.
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 9
104.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 9
103.000/18.
D. $100. (Appendix 4B) Under the direct method of allocation.67.000 * 8.17. $96.17. (Appendix 4B) Under the step-down method of allocation. $18. $0. what would be the
amount of
Custodial Services cost allocated to the Cutting Department?
A. Predetermined
overhead rates in
the Cutting and Assembly departments are based on machine hours. what would be the
predetermined
overhead rate for the year in the Assembly Department?
A.
Budgeted
costs and budgeted activity in the various departments for the most recent year
are presented
below:
Service Department costs are allocated to Producing Departments with the costs
of Custodial
Services allocated first on the basis of square metres of space occupied.
252.
D. (Appendix 4B) Under the direct method of allocation.000*200/350)/60.Russet Company has two Service Departments and two Producing Departments.

000.000 per
year.Systems Design: Process Costing
4-68
109.700. $750. $6.
C. $0.720.
C.B.600.
D. the costs of the Personnel Department are allocated before
the costs of the
Engineering Department are allocated. Departments and number of employees are as
follows:
Chapter 04 . $698.000 * 10/(10 + 84 + 66)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 10
Anderson Company has two Service Departments and two Producing
Departments. What would be the amount of this cost
allocated to the
Engineering Department under the step-down method. Under the
step-down method. (Appendix 4B) Suppose Cafeteria Department costs are allocated on the
basis of number
of employees and that the step-down method is used with costs of the Cafeteria
Department
allocated first.250/(5.
$12. $5. $0.250 + 4. rounded to the nearest
dollar?
A. $81.
B.000 * 5. (Appendix 4B) Total costs in the Personnel Department are $900.750)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 9
108. $5.
$10. $625. The costs
of the Personnel Department are allocated to other departments on the basis of
the number of
employees in the departments.
B.
D.
. What would be the amount of cost allocated from the Cafeteria
Department to
Maintenance Department?
A.

000 * 290/(90 + 590 + 290)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 10
Chapter 04 . (Appendix 4B) What would be the amount of Accounting Department costs
allocated to
the Maintenance Department?
. What would be the amount of Personnel
Department
cost that would be allocated to Producing Department 2 under the step method?
A.
D.046. $0. (Appendix 4B) Total costs in the Personnel Department are $900.
$900.000. the costs of the Personnel Department are allocated before
the costs of the
Engineering Department are allocated. with the
Accounting
Department being allocated first.
Accounting Department costs are allocated to Operating Departments on the
basis of
accounting hours of service provided. $261. $269.Systems Design: Process Costing
4-69
The Mohawk-Hudson Company is an electric utility which has two Service
Departments:
Accounting and Maintenance.505. $83.591.072.000 * 90/(90 + 590 + 290)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 10
110.
900. Under the
step-down method.
Maintenance Department costs are allocated on the basis of maintenance hours
of service.
D.C. Budgeted costs and other data for the
coming year are as
follows:
The step-down method is used to allocate Service Department costs. $296.
111.000 per
year.
C.
B. It has two Operating Departments: Generation and
Transmission. $92.

D. (Appendix 4B) What is the value of S2 in the two equations?
A.
115. $144.
B.000/. $144.
B.889. $130.000. $128.
Bloom's Level: Evaluate
Difficulty: Hard
Learning Objective: 11
Chapter 04 .
C.000 + 0.90 Text does not give examples of this type of calculation.Systems Design: Process Costing
4-72
116.20 x S1
Round all calculations to the nearest dollar in answering the related questions.889.50 *(100.000.50 x S2
S2 = $100. (Appendix 4B) What is the value of S1 in the two equations?
A. $80.000.444.Chapter 04 .
.444. $128.Systems Design: Process Costing
4-71
X Company has two Service Departments—S1 and S2—and two Production
Departments—P1 and P2.000 +.000. $140.
S1 = 80. $100.
D.000
S1 = 130.10*S1 = 130.
C. Direct costs for each department and the proportion of
service costs
used by the various departments for the month of September are as follows:
X Company's management accountant has formulated the following two
equations as the first
step in using the reciprocal method to allocate the costs of the two Service
Departments:
S1 = $80.000 + 0.000 + 20*S1)
S1 -.

The following journal entry would be made in a process costing system
when units that
have been completed with respect to the work done in the final processing
department are
transferred to the finished goods warehouse:
TRUE
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 1
119. In process costing. The following journal entry would be made in a process costing system
when units that
have been completed with respect to the work done in Processing Department Z
are transferred
from Processing Department Z to Processing Department Y:
TRUE
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 1
Chapter 04 . (Appendix 4A) The "Quantity Schedule and Equivalent Units" section of the
production
report is the same for the weighted-average method and the FIFO method of
process costing. the same equivalent units figure is used for both
materials and
conversion costs.Substitute the value of S1 from #142 into second equation.
FALSE
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 2
.
Bloom's Level: Evaluate
Difficulty: Hard
Learning Objective: 11
True / False Questions
117.
S2 = 100.
FALSE
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 2
Learning Objective: 6
120.444.000 +.Systems Design: Process Costing
4-73
118.444)
Text does not give examples of this type of calculation.20 * 144.

(Appendix 4A) The cost per equivalent unit for conversion costs will always
be the same
under both the FIFO and the weighted-average methods if there is no beginning
work-in-process inventory. (Appendix 4A) Under the FIFO process costing method. (Appendix 4A) The cost per equivalent unit for conversion costs will always
be the same
under both the FIFO and the weighted-average methods if there is no ending
work-in-process
inventory.
TRUE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 3
125. When computing the cost per equivalent unit.
FALSE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 4
124.
TRUE
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 3
Learning Objective: 7
123.
FALSE
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 3
Learning Objective: 7
Chapter 04 . it is NOT necessary to
consider the
percentage of completion of the units in beginning inventory under the weightedaverage
method. When assigning costs to partially completed units in the ending work-inprocess inventory.Systems Design: Process Costing
4-74
122.
it is NOT necessary to consider the percentage of completion of the units under
the
weighted-average method.121.
TRUE
. the equivalent units
of production
in the production report relate to work done only during the current period.

Systems Design: Process Costing
4-75
126. In order to use process costing. The weighted-average method of process costing can only be used if
materials are added at
the beginning of the production process.
all divided by the equivalent units of production for the period.
TRUE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 1
129. the output of a processing department must
be
homogeneous.
FALSE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 7
127.
FALSE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 2
Learning Objective: 6
128.
TRUE
Bloom's Level: Remember
Difficulty: Easy
Learning Objective: 1
. (Appendix 4A) The cost per equivalent unit under the FIFO method of
process costing is
equal to the cost of beginning work-in-process inventory plus the costs added
during the period.Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 6
Chapter 04 . A manufacturer of blank DVDs would ordinarily use process costing rather
than job-order
costing.

TRUE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 10
Chapter 04 . then the number of employees in the
personnel
department itself must be included in the allocation base when the step-down
method is used.
FALSE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 10
136. (Appendix 4B) The step-down method of allocating service department
costs takes into
account some.
FALSE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 10
. reciprocal
services provided among service departments are ignored.Systems Design: Process Costing
4-78
138.
TRUE
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 9
135. (Appendix 4B) Under the direct method of allocating service department
costs. (Appendix 4B) The step-down method usually begins with the service
department that
provides the least amount of service to the other service departments. of the reciprocal services that service departments
provide to each
other. (Appendix 4B) If personnel department expenses are allocated on the basis
of the number
of employees in various departments. (Appendix 4B) The step-down method requires establishing an order of
allocation before
service department costs can be allocated to operating departments.134. but not all.
TRUE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 10
137.

TRUE
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 10
Learning Objective: 11
Learning Objective: 9
Chapter 04 .
TRUE
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 10
Learning Objective: 11
140.
.
The following
data concern the operations of the company's first processing department for a
recent month:
Required:
Prepare a production report for the department using the weighted-average
method. (Appendix 4B) The step method usually provides results that are a
reasonable
approximation of the results that the reciprocal method provide. (Appendix 4B) The reciprocal method of allocating service department costs
is much
simpler than the direct method and as a consequence is much more widely used. (Appendix 4B) Cost allocation is still an issue even if a service department
generates some
revenues from operating departments.
FALSE
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 11
Learning Objective: 9
141. Able Inc.Systems Design: Process Costing
4-79
Essay Questions
142.139. uses the weighted-average method in its process costing system.

d) Determine the cost of ending work-in-process inventory in the department.Systems Design: Process Costing
4-84
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
Learning Objective: 4
Learning Objective: 5
Chapter 04 .
Chapter 04 .
Chapter 04 .
Required:
. The
Curing Department of Harmon Company reported the following information for
the month of
November:
All materials are added at the beginning of the process.Systems Design: Process Costing
4-85
144. Harmon Company uses the weighted-average method in its process costing
system.Systems Design: Process Costing
4-83
a) through d) The answers to all of the questions can be found by filling out a
production report
as follows.

rounded to the nearest tenth of a
cent. after
forming has
been completed. the units are transferred to the Finishing Department.Systems Design: Process Costing
4-90
a) Equivalent units:
Unit costs:
. calculate the
equivalent units and
unit cost for materials and conversion costs.
Chapter 04 . (Appendix 4A) The Smith Company manufactures a product that goes
through two
departments prior to completion. calculate the
equivalent units
and unit cost for materials and conversion costs.
Required:
a) Assuming the company uses the weighted-average method.Chapter 04 .
b) (Appendix 4A) Assuming the company uses the FIFO method.Systems Design: Process Costing
4-88
Quantity schedule and equivalent units
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
Chapter 04 . rounded to the nearest tenth of
a cent. during March:
Cost in the beginning work-in-process inventory and cost added during the month
were as
follows:
The Forming Department is the first department in the production process. The following information is available on work in
one of these
departments.Systems Design: Process Costing
4-89
146. the Forming Department.

A review of the company's inventory and cost records
for the most
recently completed year revealed the following information:
The company uses the weighted-average method in its process costing system.
Required:
a) Compute the equivalent units of production and the cost per equivalent units
for materials
and for conversion costs.
b) Determine the cost transferred to finished goods.
c) Determine the amount of cost that should be assigned to the ending work-inprocess
inventory.Chapter 04 . Miller Company manufactures a product for which materials are added at
the beginning of
the manufacturing process.
The ending
inventory is 50% complete with respect to conversion costs.
Chapter 04 .Systems Design: Process Costing
4-97
a)
b)
c)
.Systems Design: Process Costing
4-96
149.

(Appendix 4A) Sharp Company has a process costing system.
Required:
Assuming the company uses the weighted-average method. The following information is available on work in one of these
departments.Systems Design: Process Costing
4-98
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
Learning Objective: 4
150. The Hardy Company manufactures a product that goes through two
departments prior to
completion.Chapter 04 . The following
data relate to
the company's Mixing Department for a recent month:
All materials are added at the beginning of the mixing process.
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
Chapter 04 . rounded to the nearest tenth of a cent. during the month of July:
The Moulding Department is the first department in the production process. the units are transferred to the Finishing Department.
.
Required:
a) (Appendix 4A) Compute the equivalent units of production for materials using
the FIFO
method. the
Moulding Department. calculate the
equivalent units for
materials and conversion costs. after
moulding has
been completed.Systems Design: Process Costing
4-99
151.

b) (Appendix 4A) Compute the equivalent units of production for conversion
using the FIFO
method. (Appendix 4A) Darver Inc.Systems Design: Process Costing
4-102
Quantity Schedule and Equivalent Units
.
c) Compute the equivalent units of production for materials using the weightedaverage method.
d) Compute the equivalent units of production for conversion using the weightedaverage
method.
Chapter 04 .
Chapter 04 .Systems Design: Process Costing
4-100
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 6
Chapter 04 . uses the FIFO method in its process costing
system. The
following data concern the operations of the company's first processing
department for a recent
month:
Required:
Prepare a production report for the department using the FIFO method.Systems Design: Process Costing
4-101
152.

Chapter 04 .
d) Determine the cost of ending work-in-process inventory in the department. (Appendix 4A) Easy Inc.Systems Design: Process Costing
4-104
153.
c) Determine the cost of units transferred out of the department during the month.
Chapter 04 .Systems Design: Process Costing
4-105
a) through d) can be answered by completing a production report as follows:
. The
following data concern the operations of the company's first processing
department for a recent
month:
Required:
Using the FIFO method:
a) Determine the equivalent units of production for materials and conversion
costs.Systems Design: Process Costing
4-103
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 6
Learning Objective: 7
Learning Objective: 8
Chapter 04 .
b) Determine the cost per equivalent unit for materials and conversion costs. uses the FIFO method in its process costing
system.

Systems Design: Process Costing
4-111
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 6
. (Appendix 4A) Production and cost data for the month of February for
Process A of the
Packer Manufacturing Company were as follows:
The company uses the FIFO cost method in its process costing system.
Required:
a) Calculate the equivalent units and unit costs for February for materials and
conversion costs.Systems Design: Process Costing
4-109
155.Systems Design: Process Costing
4-110
a)
b)
c)
Chapter 04 .
Chapter 04 .
b) Determine the cost transferred to finished goods.
c) Determine the amount of cost that should be assigned to the ending work-inprocess and
finished goods inventories.Learning Objective: 6
Chapter 04 .

and
Surgery.
There is more tracing of costs (such as direct materials and direct labour) to
individual jobs in
job-order costing systems than in processing costing systems. In essence. that is. in many cases. all costs are indirect in process
costing systems
and have to be allocated.
Of course. Usually. the allocation bases (including overhead
allocations in
job-order costing systems) are not entirely accurate. more tracing generally costs more money even in this age of
technology.
Bloom's Level: Evaluate
Difficulty: Hard
Learning Objective: 1
Chapter 04 . This is the
reason why job-order costing systems tend to be more expensive than process
costing systems. instead they are traced to activities or processes
or departments
before their allocation to outputs. greater accuracy and cost-efficiency. On the other hand they also tend to be more costly
systems than
processing costing systems.
Hybrid systems that are part-job and part-process are become popular because
they offer the
benefits of both systems. costs
are not traced to products/jobs.
Required:
Comment on the two observations.Learning Objective: 7
Learning Objective: 8
156.Systems Design: Process Costing
4-112
157.
selected
arbitrarily without establishing a cause-and-effect relationship. In process costing
systems. Geriatrics. They are. Job-costing systems tend to produce more accurate product cost
information compared to
process costing systems. (Appendix 4B) Central Medical Clinic has two Service Departments—
Building Services
and Energy—and three Operating Departments—Pediatrics. Central
allocates the cost of Building Services on the basis of square metres and Energy
on the basis of
.

rounding all dollar amounts to the nearest whole dollar. Budgeted operating data for the year
just completed
follow:
Required:
a) Prepare a schedule to allocate Service Department costs to the Production
Departments by
the direct method. allocating Custodial Services first.Systems Design: Process Costing
4-116
a) Direct method:
b) Step-down method:
Chapter 04 . Milling. and rounding all
amounts to the
nearest whole dollar. Delta allocates the cost of Custodial Services on the basis of square
metres and
Maintenance on the basis of labour hours.
and
Assembly.
Chapter 04 .Systems Design: Process Costing
4-117
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 10
Learning Objective: 9
.
b) Prepare a schedule to allocate Service Department costs to the Production
Departments by
the step-down method.Services and Maintenance—and three Production Departments—Cutting.

(Appendix 4B) Hancock Company has two Service Departments—Factory
Administration and Maintenance—and two Producing Departments.
Costs of Factory
Administration are allocated on the basis of the number of employees. Allocation begins with the Factory
Administration
Department. Costs of
Maintenance
are allocated on the basis of labour hours.Systems Design: Process Costing
4-118
159.
. (Appendix 4B) Flinders Company has two Service Departments—Factory
Administration
and Maintenance—and two Operating Departments. and
then
Maintenance costs are allocated on the basis of total labour hours. Selected
information
relating to these departments follow:
The company allocates Service Department costs using the step-down method.
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 10
Chapter 04 .Systems Design: Process Costing
4-119
160. Selected information
relating to these
departments is given below:
The company allocates Service Department costs by the step-down method.
Factory
Administration costs are allocated first on the basis of number of employees.Chapter 04 .
Required:
Prepare a schedule showing the allocation of Service Department costs to other
departments.

Arranging for a shipment of a number of different products to a customer is an
example of an
activity at which of the following levels?
A. Batch-level activity.Activity-Based Costing: A Tool to Aid Decision Making
. Customer-level activity. Batch-level activity. Batch-level activity.
C.
D.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 1
Chapter 05 .
C. Unit-level activity.
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 1
5. Organization-sustaining activity.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 1
6. Unit-level activity. Organization-sustaining activity.
B. Worker recreational facilities are examples of costs that would ordinarily be
considered to be
incurred at which of the following activity levels?
A. Product-level activity.
B. Product-level activity.Chapter 05 .
C. Unit-level activity. Which of the following activity levels is an example of the clerical activity
associated with
processing purchase orders to produce an order for a standard product?
A. Organization-sustaining activity.Activity-Based Costing: A Tool to Aid Decision Making
5-2
4.
D.
B.
D.

Because of the difficulties associated with identifying cost pools for the first
stage of the
allocation process.
D.
.
B. Batch-level activity.
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 2
Chapter 05 .
C. Organization-sustaining activity.
C.
D.
D. Human resource management.Activity-Based Costing: A Tool to Aid Decision Making
5-4
10. Because of the use of direct labour hours in allocating overhead costs to
products rather than
machine time or quantity of materials.5-3
7. Because of the over-reliance on volume as a basis for allocating overhead
costs where
products differ regarding the number of units produced. Cafeteria facilities available to and used by all employees. lot size. Advertising a product. Why may departmental overhead rates NOT correctly assign overhead costs?
A. Unit-level activity. It is a key aspect of the activity-based costing model.
B.
C. Product-level activity.
B. Which of the following would be classified as a product-level activity?
A. Human resource management is an example of an activity at which of the
following levels?
A.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 1
8.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 1
9. Which of the following statements about overhead allocation based on
volume alone is
correct?
A. Machine setup for a batch of a standard product. or complexity of
production. Because of the high correlation between direct labour hours and the
incurrence of overhead
costs.

C.
customers. most managers insist on fully allocating all costs to products. It will systematically overcost high-volume products and undercost low-volume
products.Activity-Based Costing: A Tool to Aid Decision Making
5-5
13.
C.
Bloom's Level: Remember
Difficulty: Easy
Learning Objective: 1
12.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 3
Learning Objective: 5
11. An event that causes a transaction to begin. Maintaining an activity-based costing system is more costly than maintaining a
traditional
direct labour-based costing system. A measure of the amount of time required to perform an activity. A simple count of the number of times an activity occurs. What is a transaction driver?
A.
D.
D.
B.
C.
B. An activity measure that is used for the life of an activity-based costing
system.B. This results in
overstated costs.
C.
Bloom's Level: Remember
Difficulty: Easy
Learning Objective: 1
Chapter 05 . In practice. Changing from a traditional direct labour-based costing system to an activitybased costing
system changes product margins and other key performance indicators used by
managers. and
other costing objects in an activity-based costing system.
B. A simple count of the number of times an activity occurs.
. It will systematically overcost low-volume products and undercost high-volume
products. An event that causes a transaction to end. What is a duration driver?
A. An activity measure that is used for the life of the company. It must be used for external financial reporting.
D. A measure of the amount of time required to perform an activity. Which of the following is NOT a limitation of activity-based costing?
A. Such
changes are often resisted by managers.

Its yellow margin will be zero. "Green" costs adjust automatically to changes in activity. (Appendix 5A) Which of the following best describes a cost object.
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 6
Chapter 05 .
B.D.. The costs of idle capacity and organization-sustaining costs are not assigned
codes. All of the above. (Appendix 5A) Which of the following statements concerning ease of
adjustment codes is
NOT correct?
A.
C.e. (Appendix 5B) Why would an activity-based costing system that is designed
for internal
decision making NOT conform to generally accepted accounting principles?
A.
C. Its yellow margin may be either positive or negative. such as a
product or
customer. Its yellow margin will be positive.
C. More accurate product costs may result in increasing the selling prices of
some products. Some non-manufacturing costs are assigned to products. "Red" costs cannot be adjusted to changes in activity. Some manufacturing costs (i.
B.
B.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 5
14. that has a negative green margin?
A.
D. but such adjustments
require
management action.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 7
15. "Yellow" costs could be adjusted to changes in activity.Activity-Based Costing: A Tool to Aid Decision Making
5-6
16. First-stage allocations may be based on subjective interview data. the adjustment is not automatic.
D. Its yellow margin will be negative.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 6
.
D. the costs of idle capacity and organizationsustaining costs)
will not be assigned to products.

Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 6
20.47. or zero. negative. Its yellow margin may be positive. Its yellow margin will be negative. $19.
D. Its yellow margin will be zero.
B. Its green margin may be positive.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 6
Chapter 05 .
C.
B. or zero.
C. negative. (Appendix 5A) Which of the following best describes a cost object. The
estimated total cost and expected activity for each of the company's three activity
cost pools are
as follows:
The activity rate under the activity-based costing system for Activity 3 is closest
to which of the
following?
A. Its green margin will be negative. Its green margin will be zero.17.Activity-Based Costing: A Tool to Aid Decision Making
5-7
19. negative.
D. Its yellow margin will be negative. Paul Company has two products: A and B. such as a
product or
customer. Its green margin will be positive. Its yellow margin may be either positive. that has a positive green margin?
A. The company uses activity-based
costing. Its yellow margin will be positive.
.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 6
18. such as a
product or
customer.
B. such as a
product or
customer. that has a positive red margin?
A. that has a negative red margin?
A. (Appendix 5A) Which of the following best describes a cost object. (Appendix 5A) Which of the following best describes a cost object.
C. Its yellow margin will be zero.
D. or zero. Its yellow margin will be positive.

200
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
Chapter 05 .45. There
.00.
C. The company uses activitybased costing. $21.B. $65.87.
C. $18. The company has two products:
A and B.
B. $70.
D.000 units and of Product B is 6.33. Matt Company uses activity-based costing.53. $28.600/750
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
Chapter 05 .67. The
estimated total cost and expected activity for each of the company's three activity
cost pools are
as follows:
The activity rate under the activity-based costing system for Activity 3 is closest
to which of the
following?
A. $46. Selena Company has two products: A and B.Activity-Based Costing: A Tool to Aid Decision Making
5-8
21.40.000/1.
$26.
D. The
annual production and sales of Product A is 8.Activity-Based Costing: A Tool to Aid Decision Making
5-9
22.000
units. $58.
$14.

63. Bridget Company uses activity-based costing.
B.60. $3.000 units and of Product B is
3.
(9.
B.00.
C.000*800 + 91. with estimated total cost and expected activity
as follows:
The cost per unit of Product A under activity-based costing is closest to which of
the
following?
A. $13.
D.000 units. $6.40.000/750*400 + 12.200/3.000*800)/8.000
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
Chapter 05 . The company has two
products: A and B.Activity-Based Costing: A Tool to Aid Decision Making
5-10
23. with estimated total cost and expected activity as
follows:
The cost per unit of Product A under activity-based costing is closest to which of
the
following?
A.000/1.
C.000/500*100 + 37. $8. $9. $6.
There are three activity cost pools. $10.
The annual production and sales of Product A is 2.
(20.000
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
.000/500*100 + 48.59.000/1.60.are three activity cost pools. $2.600*400)/2.80.90.
D.

C. $150.
C. would be allocated in the first-stage allocation to the
Order Size
activity cost pool?
A. $282.000.Chapter 05 . The
company has provided the following data concerning its costs and its activitybased costing
system:
The "Other" activity cost pool consists of the costs of idle capacity and
organization-sustaining
costs. $255.
B.000*. $120.
B.Activity-Based Costing: A Tool to Aid Decision Making
5-12
25. $360. would be allocated in the first-stage allocation to the
Customer
Support activity cost pool?
A.000. You have been asked to complete the first-stage allocation of costs to the
activity cost
pools. $234.25 + 240. How much cost.000.000. in total.000. in total.
.Activity-Based Costing: A Tool to Aid Decision Making
5-11
Dideda Company uses an activity-based costing system with three activity cost
pools. How much cost.000*.000.000.
24. $255.6
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
Chapter 05 .
D.
360.

000*. $348.
C. should NOT be allocated to orders and products in
the second
stage of the allocation process if the activity-based costing system is used for
internal decision
making?
A.
360.000.05 + 100.000.000.000. How much cost. $120.
480.6
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
.000.000. $60.000.
C.2
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
26. $188.
360.
27.1 + 240.D. You have been asked to complete the first-stage allocation of costs to the
activity cost
pools. in total. $0.000*.2
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
Chapter 05 .65 + 240.
B. $29. $84.000*.000.
D. $390.000*.000*.
D. in total.
B. $84. The
company has provided the following data concerning its costs and its activitybased costing
system:
The "Other" activity cost pool consists of the costs of idle capacity and
organization-sustaining
costs.000*.Activity-Based Costing: A Tool to Aid Decision Making
5-13
Diehl Company uses an activity-based costing system with three activity cost
pools. How much cost. would be allocated in the first-stage allocation to the
Order Size
activity cost pool?
A.

2
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
Chapter 05 . in total. The
company has provided the following data concerning its costs and its activitybased costing
.000. should not be allocated to orders and products in the
second stage
of the allocation process if the activity-based costing system is used for internal
decision
making?
A.85 + 100.2
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
29. $0.500.000. $493.000*. would be allocated in the first-stage allocation to the
Customer
Support activity cost pool?
A. $428.000. $304.Activity-Based Costing: A Tool to Aid Decision Making
5-14
28.000*. $68. How much cost.000.Chapter 05 . in total.000.
B.
C.000*.Activity-Based Costing: A Tool to Aid Decision Making
5-15
Dierich Company uses an activity-based costing system with three activity cost
pools.
D. $116. $116.
480.000*.
480. $58.
D.000.
B.1 + 100.
C. How much cost.

$222. $307. $164. $82.
600.000*.
600.000*.
D. How much cost.
30.75 + 220.000*. should not be allocated to orders and products in the
second stage
of the allocation process if the activity-based costing system is used for internal
decision
making?
A.
D. You have been asked to complete the first-stage allocation of costs to the
activity cost
pools.
B. $123.500.system:
The "Other" activity cost pool consists of the costs of idle capacity and
organization-sustaining
costs.
B.15 + 220. $104.
C.1 + 220.000.000. How much cost. $389.2
Bloom's Level: Apply
.000*.000.000.
B. $0. $494.000*.Activity-Based Costing: A Tool to Aid Decision Making
5-16
31.2
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
32.
C.000. in total. would be allocated in the first-stage allocation to the
Customer
Support activity cost pool?
A.000. would be allocated in the first-stage allocation to the
Order Size
activity cost pool?
A.000.000.6
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
Chapter 05 . $164. $615.
C. $492. How much cost.000*. in total.000.500.
D.
600. in total.

in total.000.5
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
Chapter 05 . $210. How much cost. $180. The company has provided the following data concerning its costs and its
activity-based
costing system:
The "Other" activity cost pool consists of the costs of idle capacity and
organization-sustaining
costs. $255.000*. in total. would be allocated in the first-stage allocation to the
Order Size
activity cost pool?
A. How much cost.000. $240.Activity-Based Costing: A Tool to Aid Decision Making
5-17
Davis Company uses an activity-based costing system in which there are three
activity cost
pools.
C.000. You have been asked to complete the first-stage allocation of the costs to
the activity cost
pools.
B.000*.000. $255. $300.
.
33.35 + 200.Activity-Based Costing: A Tool to Aid Decision Making
5-18
34.Difficulty: Medium
Learning Objective: 2
Chapter 05 . would be allocated in the first-stage allocation to the
Customer
Support activity cost pool?
A.000.
B.000.
400.
D.

000*.
(300. The company has provided the following data concerning its
annual overhead
costs and its activity-based costing system:
The "Other" activity cost pool consists of the costs of idle capacity and
organization-sustaining
costs.000
Bloom's Level: Apply
Difficulty: Medium
.000. rounded to the nearest whole cent? In other words.3
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
35.000*.000*. The activity measures for the activity cost pools for the year are as follows:
36.C. $48.Activity-Based Costing: A Tool to Aid Decision Making
5-19
Escau Company is a wholesale distributor that uses activity-based costing for all
of its
overhead costs.
400.
400. what would be the
overall activity
rate for the Filling Orders activity cost pool?
A.
C. $60.
B.000*.000.000*. What would be the total overhead cost per order according to the activitybased costing
system. $120.000.00.000.000*.
D.3 + 100.35)/3.
D.67.000.00.
D. How much cost.
C. $52. $0. $56. $280.00. $49.2
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
Chapter 05 . $80. $330.
B. in total should not be allocated to orders and products in the
second stage
of the allocation process if the activity-based costing system is used for internal
decision
making?
A.55 + 200.1 = 200.

C. what would be the
overall activity
rate for the Customer Support activity cost pool?
A.000. $11.35)/1.000*.
C.5 + 200. $12.45)/30
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
41.00. rounded to the nearest whole dollar? In other words. To the nearest whole dollar.
D. how much wages and salaries cost would be
allocated to a
customer who placed four orders in a year?
A. $273. $7.000*.
. What would be the total overhead cost per customer according to the activitybased costing
system.Escalona Company is a wholesale distributor that uses activity-based costing for
all of its
overhead costs.000*.4 + 200.00
(580.Activity-Based Costing: A Tool to Aid Decision Making
5-22
40.00.
(580. $312. The company has provided the following data concerning its
annual overhead
costs and its activity-based costing system:
The "Other" activity cost pool consists of the costs of idle capacity and
organization-sustaining
costs. $292. rounded to the nearest whole cent? In other words. $12.124. what would be the
overall activity
rate for the Filling Orders activity cost pool?
A.350.
B.000*. The amount of activity for the year is as follows:
39. $302.700.
B. What would be the total overhead cost per order according to the activitybased costing
system.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
Chapter 05 . $13.50.667.
D.

595.000 * 4 + 580. $37. $10.2)/4. The company has provided the following data concerning its
annual overhead
costs and its activity-based costing system:
The "Other" activity cost pool consists of the costs of idle capacity and
organization-sustaining
costs.
(540.5/30 * 1
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
Learning Objective: 6
Chapter 05 .Activity-Based Costing: A Tool to Aid Decision Making
5-23
Escoto Company is a wholesale distributor that uses activity-based costing for all
of its
overhead costs.248.
D.1 + 200.
B. $27.Activity-Based Costing: A Tool to Aid Decision Making
. What would be the total overhead cost per order according to the activitybased costing
system.000*.75.859.
C. $23.00.000*.
(580. what would be the
overall activity
rate for the Filling Orders activity cost pool?
A.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
Chapter 05 .50.
D.000*.
C. The amount of activity for the year is as follows:
42. $8.B. rounded to the nearest whole cent? In other words.50.4)/1.000*. $18. $14.

Note the numerator in each fraction represents the
cost assigned to
each pool for wages and salaries. $7. $14.
C.950.000/4*8 + 432.
D. $12.474.
D.8 + 200. The annual production and sales of
Product A is
800 units and of Product B is 500 units.948.6)/40
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
44.000*.2 direct labour hours per unit. The company has traditionally used
direct labour hours
as the basis for applying all manufacturing overhead to products.100. how much wages and salaries cost would be
allocated to a
customer who placed eight orders in a year?
A.5-24
43. $14. what would be the
overall activity
rate for the Customer Support activity cost pool?
A. $9.
The total
estimated overhead for next period is $92.
54. $10.
.
(540.
B. $13.023.
C.
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
Learning Objective: 6
Chapter 05 .3 direct
labour hours per unit.000*.908.191. What would be the total overhead cost per customer according to the activitybased costing
system.
B. To the nearest whole dollar.800. rounded to the nearest whole dollar? In other words. $11.Activity-Based Costing: A Tool to Aid Decision Making
5-25
Acton Company has two products: A and B. and Product B requires 0.000/40*1.800. Product A
requires 0.

The predetermined overhead rate under the traditional costing system is
closest to which of
the following?
A.
$270. activity rate) for Activity 1 under the
activity-based
costing system is closest to which of the following?
A.
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 5
47.
C.Activity-Based Costing: A Tool to Aid Decision Making
5-26
46.e.17. $270. $37.
C.2 hrs. $7. $2. $24.
B. $13. $4.
D.49.
C.
D.. and General
Factory—with
estimated overhead costs and expected activity as follows:
(Note: The General Factory activity cost pool's costs are allocated on the basis of
direct labour
hours.97.13.
B. The new activity-based costing
system would
have three overhead activity cost pools—Activity 1.
B. $54.3hrs + 500*.46.023/(800*. $28.60.
.17. The overhead cost per unit of Product B under the traditional costing system
is closest to
which of the following?
A.32.The company is considering switching to an activity-based costing system for the
purpose of
computing unit product costs for external reports.)
45.63. $13.15.
$92.66 (from #65) *.66. $21.2hrs)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 5
Chapter 05 . The predetermined overhead rate (i. Activity 2.

785.
C. The company has traditionally used
direct labour
hours as the basis for applying all manufacturing overhead to products.97.20. $83.100 units.
$14.79.800/3.24.
B.100*.)
49.100*500 + 64.785/(1.500 + 12.700 units and of Product B is 1.6 direct labour hours per
unit. (Appendix 5B) The predetermined overhead rate under the traditional costing
system is
closest to which of the following?
A. $86. The overhead cost per unit of Product A under the activity-based costing
system is closest to
which of the following?
A. Product
A requires 0.3hrs + 1.Activity-Based Costing: A Tool to Aid Decision Making
5-27
Addy Company has two products: A and B. $70.000*2. The total
estimated overhead for next period is $98.
(14.D.
D. Activity 2. The annual production and sales of
Product A is
1.6)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 5
Learning Objective: 7
.
The company is considering switching to an activity-based costing system for the
purpose of
computing unit product costs for external reports. $11.3
direct labour hours per unit.48.43.
$98. and
General
Factory—with estimated overhead costs and expected activity as follows:
(Note: The General Factory activity cost pool's costs are allocated on the basis of
direct labour
hours.08.
D.487/1.15.700*. $19. $84. and Product B requires 0. $9.
C.736/340*240)/800 units
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 2
Learning Objective:
Chapter 05 .66. $43. The new activity-based costing
system
would have three factory overhead activity cost pools—Activity 1.100
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
48.
B. $81.487/1.

B.800
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
54. $41.450/1.
B. The company has two products: A
and B.
(16.800*700 + 9.91. with estimated costs and expected activity as follows:
53. $24. There are
three activity cost pools.69.
C.77. $10.Activity-Based Costing: A Tool to Aid Decision Making
5-30
Accola Company uses activity-based costing..53.Chapter 05 . The
annual production and sales of Product A is 200 units and of Product B is 400
units.
D.660/700*100 + 18. The
. $17.36.e.58. The company has two products: A
and B. $74. $16.450/1. The cost per unit of Product B is closest to which of the following?
A. $26.73.731/220*160)/400
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
Chapter 05 . The predetermined overhead rate (i.
$18. $81. activity rate) for Activity 2 under the
activity-based
costing system is closest to which of the following?
A.
D.Activity-Based Costing: A Tool to Aid Decision Making
5-29
Abel Company uses activity-based costing.
C.25.

$119. The cost per unit of Product A is closest to which of the following?
A. $47.000
Bloom's Level: Apply
.72.00.33.913. $22. $26.100 units and of Product B is 700
units.
C. $116. $30. There are
three activity cost pools.
$48. The company uses activity-based
costing and has
prepared the following analysis.
B. The activity rate under the activity-based costing system for Activity 3 is
closest to which of
the following?
A.976/860
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
56.981/1. $57.89.
D.
C.annual production and sales of Product A is 1. $56. $33.600 + 48.67.796/860*440)/100
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
Chapter 05 .270/1. $41. $59.74.
D.900*1.32.70.53.18. The annual
production and sales of
Product D is 7. $29.
C.Activity-Based Costing: A Tool to Aid Decision Making
5-31
Arthur Company has two products: S and D.100*600 + 35.
(18.20.000/3.
57.
B.23.
$90. showing the estimated total cost and expected
activity for each
of its three activity cost pools:
The annual production and sales of Product S is 4. The activity rate for Activity 3 is closest to which of the following?
A. with estimated costs and expected activity as follows:
55.547 units.
D.
B.

000*300)/4.
D.88.600/750*500 + 90.97. $1.000/1. $26.Activity-Based Costing: A Tool to Aid Decision Making
5-32
Monson Company has two products: G and P.
D.000/3.
B.500
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
60. $1.Difficulty: Easy
Learning Objective: 2
58.
(20. The cost per unit of Product P under activity-based costing is closest to which
of the
following?
A.000/500*100 + 14.
B. The cost per unit of Product S under activity-based costing is closest to which
of the
following?
A.
59.547
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
Chapter 05 .00.640 units.67. $89. $21.00. $10.
B.00. The annual
production and sales
of Product P is 26.
C.00.
C.98. $16.00. The company uses activity-based
costing and
has prepared the following analysis. $10.
24. $6.600.83.
.33. The activity rate under the activity-based costing system for Activity 2 is
closest to which of
the following?
A. $5. $4.
C. showing the estimated total cost and
expected activity for
each of its three activity cost pools:
The annual production and sales of Product G is 10.

600
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
Chapter 05 .600)/26.10.000/1.5)/60.
(80.D.
D.Activity-Based Costing: A Tool to Aid Decision Making
5-33
Forse Florist specializes in large floral bouquets for hotels and other commercial
spaces.000*.16.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
Chapter 05 . What would be the total overhead cost per delivery according to the activitybased costing
.Activity-Based Costing: A Tool to Aid Decision Making
5-34
62.000/4.6 + 40.000/600*400 + 24. What would be the total overhead cost per bouquet according to the activitybased costing
system.000*3. what would be the
overall activity
rate for the Making Bouquets activity cost pool?
A. $1.
(30.500*900 + 80.
C.
B.90.05. $1. The amount of activity for the year is as follows:
61. $30. $0. rounded to the nearest whole cent? In other words. The
company has provided the following data concerning its annual overhead costs
and its
activity-based costing system:
The "Other" activity cost pool consists of the costs of idle capacity and
organization-sustaining
costs. $1.000*.20.

10.7 + 50. $24.00. $7. $6. what would be the
overall activity
rate for the Deliveries activity cost pool?
A.Activity-Based Costing: A Tool to Aid Decision Making
5-35
63.25)/5.
B. What would be the total overhead cost per delivery according to the activitybased costing
system.35.73. $6. The amount of activity for the year is as follows:
Chapter 05 .000*. $1.system.
C. $1. what would be the
overall activity
rate for the Making Bouquets activity cost pool?
A.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
Foster Florist specializes in large floral bouquets for hotels and other commercial
spaces. rounded to the nearest whole cent? In other words.3 + 40.000*.000*. What would be the total overhead cost per bouquet according to the activitybased costing
system.79.00
B.20
(80.60
C. The
company has provided the following data concerning its annual overhead costs
and its
activity-based costing system:
The "Other" activity cost pool consists of the costs of idle capacity and
organization-sustaining
costs. $2. $6.80
D.45)/40.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
64.
D. what would be the
overall activity
rate for the Deliveries activity cost pool?
A. rounded to the nearest whole cent? In other words.000*. rounded to the nearest whole cent? In other words.
(70.
. $1.

D. What would be the total overhead cost per bouquet according to the activitybased costing
system.2 + 50.45)/20. The
company has provided the following data concerning its annual overhead costs
and its
activity-based costing system:
The "Other" activity cost pool consists of the costs of idle capacity and
organization-sustaining
costs. $2.000*.00.000*. $2.Activity-Based Costing: A Tool to Aid Decision Making
5-36
Foss Florist specializes in large floral bouquets for hotels and other commercial
spaces.25)/1.50.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
Chapter 05 .B.
C. The amount of activity for the year is as follows:
65.5 + 40.
(70.
B. $27.000*.000*.75.
C.03.83. rounded to the nearest whole cent? In other words.00. $2. $3.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
Chapter 05 . what would be the
overall activity
rate for the Making Bouquets activity cost pool?
A. $30.
(70.Activity-Based Costing: A Tool to Aid Decision Making
5-37
. $26.48.
D.

rounded to the nearest whole cent? In other words.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
Grogam Catering uses activity-based costing for its overhead costs.93.
(70. The cost of the raw ingredients for the meals was $8. What would be the total overhead cost per delivery according to the activitybased costing
system. management has assigned ease
of adjustment
codes to the costs as follows: wages are classified as a Yellow cost.
B.25)/7. and other expenses detailed above. The company catered the function for a fixed price
of $21. $3. According to the activity-based costing system. what would be the
overall activity
rate for the Deliveries activity cost pool?
A.000*.
Chapter 05 .50.71. $4. $5.25 per meal.
For the purposes of preparing action analyses. supplies and
raw
ingredients as a Green cost.
Management would like to know whether the company made any money on a
recent function at
which 100 meals were served.000*.Activity-Based Costing: A Tool to Aid Decision Making
5-38
67.
The number of functions catered is used as the activity measure for the
Arranging Functions
activity cost pool.93.
D.00 per
meal.35 + 40. This
cost is in addition
to the costs of wages. The
company has provided
the following data concerning the activity rates in its activity-based costing
system:
The number of meals served is the measure of activity for the Preparing Meals
activity cost pool.
C.66. supplies. and other expenses as a Red cost. what was the total cost
(including the costs
. $4.

The number of meals served is the measure of activity for the Preparing Meals
activity cost pool.
The number of functions catered is used as the activity measure for the
Arranging Functions
activity cost pool.
Management would like to know whether the company made any money on a
recent function at
which 150 meals were served. The company catered the function for a fixed price
of $14.00 per
meal. The cost of the raw ingredients for the meals was $8.75 per meal. This
cost is in addition
to the costs of wages, supplies, and other expenses detailed above.
For the purposes of preparing action analyses, management has assigned ease
of adjustment
codes to the costs as follows: wages are classified as a Yellow cost, supplies and
raw
ingredients as a Green cost, and other expenses as a Red cost.

Grodt Catering uses activity-based costing for its overhead costs. The company
has provided
the following data concerning the activity rates in its activity-based costing
system:
The number of meals served is the measure of activity for the Preparing Meals
activity cost pool.
The number of functions catered is used as the activity measure for the
Arranging Functions
activity cost pool.
Management would like to know whether the company made any money on a
recent function at
which 60 meals were served. The company catered the function for a fixed price
of $19.00 per
meal. The cost of the raw ingredients for the meals was $8.60 per meal. This
cost is in addition
to the costs of wages, supplies, and other expenses detailed above.
For the purposes of preparing action analyses, management has assigned ease
of adjustment
codes to the costs as follows: wages are classified as a Yellow cost, supplies and
raw
ingredients as a Green cost, and other expenses as a Red cost.

77. Which of the following is a distinctive feature of an ABC system in
comparison to a
departmental overhead application system?
A. It is a two-stage allocation system.
B. It uses transactional drivers.
C. It must include at least one non unit-level driver.
D. It uses duration drivers.
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 1
Learning Objective: 5

Addison Company has two products: A and B. Annual production and sales are
800 units of
Product A and 700 units of Product B. The company has traditionally used direct
labour-hours
as the basis for applying all manufacturing overhead to products. Product A
requires 0.2 direct
labour hours per unit and Product B requires 0.6 direct labour hours per unit. The
total
estimated overhead for next period is $71,286.
The company is considering switching to an activity-based costing system for the
purpose of
computing unit product costs for external reports. The new activity-based costing
system
would have three factory overhead activity cost pools—Activity 1, Activity 2, and
General
Factory—with estimated overhead costs and expected activity as follows:
(Note: The General Factory activity cost pool's costs are allocated on the basis of
direct labour
hours.)
80. (Appendix 5B) The predetermined overhead rate under the traditional costing
system is
closest to:
A. $25.34
B. $22.60
C. $37.30
D. $122.91
$71,286/(800*.2 + 700*.6)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 5

Koszyk Manufacturing Corporation has a traditional costing system in which it
applies
manufacturing overhead to its products using a predetermined overhead rate
based on direct
labour-hours (DLHs). The company has two products, P85G and C43S, about
which it has
provided the following data:
The company's estimated total manufacturing overhead for the year is
$2,264,000 and the
company's estimated total direct labour-hours for the year is 40,000.
The company is considering using a variation of activity-based costing to
determine its unit
product costs for external reports. Data for this proposed activity-based costing
system appear
below:

Binegar Manufacturing Corporation has a traditional costing system in which it
applies
manufacturing overhead to its products using a predetermined overhead rate
based on direct
labour-hours (DLHs). The company has two products, R58G and R09O, about
which it has
provided the following data:
The company's estimated total manufacturing overhead for the year is
$1,617,600 and the
company's estimated total direct labour-hours for the year is 24,000.
The company is considering using a variation of activity-based costing to
determine its unit

. $71.Activity-Based Costing: A Tool to Aid Decision Making
5-53
88.000.20. $38.80 + 18.800/3.77
D.541.86
D. about
which it has
provided the following data:
The company's estimated total manufacturing overhead for the year is
$2.960/2. $216.175. (Appendix 5B) The unit product cost of product M91F under the activitybased costing
system is closest to:
A.20
B. (Appendix 5B) The unit product cost of product U86Y under the company's
traditional
costing system is closest to:
A.57
C. $75.760/47.000 +
$19.15
B.Kebort Manufacturing Corporation has a traditional costing system in which it
applies
manufacturing overhead to its products using a predetermined overhead rate
based on direct
labour-hours (DLHs). $121.
The company is considering using a variation of activity-based costing to
determine its unit
product costs for external reports.95
(1.760 and the
company's estimated total direct labour-hours for the year is 47.000*19. $197. $95.000/47.196*2162)/10.20
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 3
Learning Objective: 5
Learning Objective: 7
89.50
C.000*.80 +
$18.914*658 + 958.541.7 + 19. $55. Data for this proposed activity-based costing
system appear
below:
Chapter 05 . The company has two products.000 + 407.00
$2. U86Y and M91F.

TRUE
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 1
93. batch-level activities should not be
combined with
unit-level activities. Unit-level activities arise as a result of the total volume of production and are
performed
each time a unit is produced. Unit-level production activities are performed each time a unit is made. activities
should be grouped
together at the same level.Activity-Based Costing: A Tool to Aid Decision Making
5-54
True / False Questions
90.
how many batches are run. or how many different products are made. Organization-sustaining activities are carried out regardless of how many
units are made. When combining activities in an activity-based costing system.Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
Learning Objective: 5
Learning Objective: 7
Chapter 05 .
TRUE
Bloom's Level: Remember
Difficulty: Easy
Learning Objective: 1
91.
TRUE
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 1
92.
TRUE
Bloom's Level: Remember
Difficulty: Easy
Learning Objective: 1
. For example.

Chapter 05 .
TRUE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 2
97. Activity-based costing uses a number of activity cost pools. In traditional costing systems. customers. and other cost objects.
TRUE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 3
Chapter 05 . all manufacturing costs are assigned to
products—even
.
FALSE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 2
96. activity rates are
used to apply costs
to products. In the second-stage allocation in activity-based costing. each of which is
allocated to
products on the basis of direct labour hours. Activity rates in activity-based costing are computed by dividing costs from
the first-stage
allocations by the activity measure for each activity cost pool.Activity-Based Costing: A Tool to Aid Decision Making
5-55
94.Activity-Based Costing: A Tool to Aid Decision Making
5-56
98. The first-stage allocation in activity-based costing is the process by which
overhead costs
are assigned to products before they are assigned to customers.
FALSE
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 1
95.

nonmanufacturing costs are
not assigned to products. An activity-based costing system is generally easier to set up and run than a
traditional cost
system. When there are batch-level or product-level costs. In activity-based costing. Activity-based costing is a costing method that is designed to provide
managers with cost
information for strategic and other decisions that potentially affect only variable
costs.
TRUE
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 5
100.manufacturing costs that are not caused by the products.
an activity-based costing system ordinarily will shift costs from high-volume to
low-volume
products. a plant-wide overhead rate is used to apply
overhead to
products.
FALSE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 1
Chapter 05 .
TRUE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 1
Learning Objective: 5
99.Activity-Based Costing: A Tool to Aid Decision Making
5-57
102. as in traditional costing systems.
FALSE
. in comparison to a
traditional cost system.
FALSE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 1
Learning Objective: 5
103.
FALSE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 1
101. In activity-based costing.

Activity-Based Costing: A Tool to Aid Decision Making
5-59
Essay Questions
109.
and office
expense as a Yellow cost.
The sales revenue
from this job is $4. The amount of activity for the year is as follows:
Required:
Chapter 05 . The company has
provided the
following data concerning its annual overhead costs and its activity cost pools:
Distribution of Resource Consumption:
The "Other" activity cost pool consists of the costs of idle capacity and
organization-sustaining
costs..e.Chapter 05 .400. Ingersol Draperies makes custom draperies for homes and businesses.Activity-Based Costing: A Tool to Aid Decision Making
5-60
a) Prepare the first-stage allocation of overhead costs to the activity cost pools by
filling in the
table below:
b) Compute the activity rates (i. cost per unit of activity) for the Making Drapes
and Job
Support activity cost pools by filling in the table below:
c) (Appendix 5A) Prepare an action analysis report in good form of a job that
involves making
71 metres of drapes and has direct materials and direct labour cost of $2.
. For purposes of this action analysis report.510. The
company uses
an activity-based costing system for its overhead costs. production overhead as a Red cost. direct
materials and direct
labour should be classified as a Green cost.

The company uses an activity-based costing system for its overhead costs. The
company has
provided the following data concerning its annual overhead costs and its activitybased costing
system:
Distribution of Resource Consumption:
The "Other" activity cost pool consists of the costs of idle capacity and
organization-sustaining
costs.a) First-stage allocation
Chapter 05 .
Required:
a) Prepare the first-stage allocation of overhead costs to the activity cost pools by
filling in the
table below:
.000 square
metres.Activity-Based Costing: A Tool to Aid Decision Making
5-62
110. The amount of activity for the year is as follows:
A "square" is a measure of area that is roughly equivalent to 1. Hasty Hardwood Floors installs oak and other hardwood floors in homes
and businesses.Activity-Based Costing: A Tool to Aid Decision Making
5-61
b) Activity rates (costs divided by activity)
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
Learning Objective: 6
Chapter 05 .

uses an activity-based costing in which
there are
three activity cost pools. The amount of activity for the year is as follows:
Required:
Compute the activity rates (i.Activity-Based Costing: A Tool to Aid Decision Making
5-68
All three parts can be answered using a first-stage allocation of costs. in total.e.Activity-Based Costing: A Tool to Aid Decision Making
5-66
First-stage allocation
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
Chapter 05 . would be allocated to the Business Development
activity cost pool?
c) How much cost. a consulting firm. would be allocated to the Working On Engagements
activity cost
pool?
b) How much cost. would be allocated to the Other activity cost pool?
Chapter 05 . in total.. in total. Fife & Jones PLC.The "Other" activity cost pool consists of the costs of idle capacity and
organization-sustaining
costs.
a) $379. cost per unit of activity) for the Filling Orders and
Product
Support activity cost pools by filling in the table below:
Chapter 05 .Activity-Based Costing: A Tool to Aid Decision Making
5-67
112. The company has provided the following data
concerning its costs and
its activity-based costing system:
Distribution of Resource Consumption:
Required:
a) How much cost.000
.

Activity-Based Costing: A Tool to Aid Decision Making
5-70
a) Prepare the first-stage allocation of overhead costs to the activity cost pools by
filling in the
table below:
b) Compute the activity rates (i. Huish Awnings makes custom awnings for homes and businesses. The
company uses an
activity-based costing system for its overhead costs.000
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
Chapter 05 .
The sales revenue
from this job is $4.b) $173. cost per unit of activity) for the Making
Awnings and Job
Support activity cost pools by filling in the table below:
c) (Appendix 5A) Prepare an action analysis report in good form of a job that
involves making
80 yards of awnings and has direct materials and direct labour cost of $3. The company has provided
the following
data concerning its annual overhead costs and its activity cost pools:
Overhead Costs:
The "Other" activity cost pool consists of the costs of idle capacity and
organization-sustaining
costs.Activity-Based Costing: A Tool to Aid Decision Making
5-69
113.000
c) $228.e. direct
materials and direct
. For purposes of this action analysis report.000.. The amount of activity for the year is as follows:
Required:
Chapter 05 .000.

The company uses an activity-based costing system for its overhead
costs. Phoenix Company makes custom covers for air conditioning units for homes
and
businesses.
Chapter 05 . The
company has provided the following data concerning its annual overhead costs
and its activity
cost pools:
Distribution of Resource Consumption:
.Activity-Based Costing: A Tool to Aid Decision Making
5-73
114. production overhead as a Red cost.
and office
expense as a Yellow cost.labour should be classified as a Green cost.Activity-Based Costing: A Tool to Aid Decision Making
5-71
a) First-stage allocation
Chapter 05 .Activity-Based Costing: A Tool to Aid Decision Making
5-72
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
Learning Objective: 6
Chapter 05 .

e. cost per unit of activity) for the Making Covers
and Job
Support activity cost pools by filling in the table below:
Chapter 05 .Activity-Based Costing: A Tool to Aid Decision Making
5-75
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
Learning Objective: 6
.Activity-Based Costing: A Tool to Aid Decision Making
5-74
c) (Appendix 5A) Prepare an action analysis report in good form of a job that
involves making
50 yards of covers and has direct materials and direct labour cost of $1.500.
a) First-stage allocation
Chapter 05 . production overhead as a Red cost.500. The amount of activity for the year is as follows:
Required:
a) Prepare the first-stage allocation of overhead costs to the activity cost pools by
filling in the
table below:
b) Compute the activity rates (i.The "Other" activity cost pool consists of the costs of idle capacity and
organization-sustaining
costs. The
sales revenue
from this job is $2. direct
materials and direct
labour should be classified as a Green cost. For purposes of this action analysis report..
and office
expense as a Yellow cost.

The
company has
provided the following data concerning its activity-based costing system.Chapter 05 .
b) (Appendix 5A) Prepare an action analysis report in good form of a job that
involves painting
63 square metres and has direct materials and direct labour cost of $2.Activity-Based Costing: A Tool to Aid Decision Making
5-76
115. For purposes of this action analysis report.
The company uses an activity-based costing system for its overhead costs. direct
materials and direct
labour should be classified as a Green cost.
and office expense
as a Yellow cost.
The "Other" activity cost pool consists of the costs of idle capacity and
organization-sustaining
costs.
The company has already finished the first stage of the allocation process in
which costs were
allocated to the activity cost centres.070..
Chapter 05 . Jackson Painting paints the interiors and exteriors of homes and
commercial buildings. cost per unit of activity) for the Painting and
Job Support
activity cost pools by filling in the table below. Round off all calculations to the
nearest whole
cent. The
sales revenue
from this job is $2. painting overhead as a Red cost. The results are listed below:
Required:
a) Compute the activity rates (i.500.e.Activity-Based Costing: A Tool to Aid Decision Making
5-77
.

Overhead currently is applied to the products on the basis of direct labour hours. Product C and Product D. and
determine the unit
product cost of each product for the current year. Data
relating to these
activities for the current period are given below:
Determine the unit product cost of each product for the current period using the
activity-based
costing approach.
Chapter 05 .Activity-Based Costing: A Tool to Aid Decision Making
5-79
.a) Activity rates (costs divided by activity)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
Learning Objective: 3
Learning Objective: 6
Chapter 05 .
The company
estimated it would incur $160.
Data
concerning the current period's operations appear below:
Required:
a) Compute the predetermined overhead rate under the current method.790 in manufacturing overhead costs during the
current period. Cabanos Company manufactures two products.
b) The company is considering using an activity-based costing system to
compute unit product
costs for external financial reports instead of its traditional system based on
direct labour hours.Activity-Based Costing: A Tool to Aid Decision Making
5-78
116.
The activity-based costing system would use three activity cost pools.

55 per unit.710/4. having been developed as an attempt to enter a market
closely related to that
of Product B.800 units = $20. the predetermined overhead using direct labour
hours would be:
Predetermined overhead rate = $160. Lionel Corporation manufactures two products.36 per unit. Product H is the more complex of the two products.
.
Product H is of
fairly recent origin.58/DLH
Using this overhead rate.790/13. requiring two
hours of direct
labour time per unit to manufacture.a) The expected total direct labour hours during the period are computed as
follows:
Using these hours as a base.
Product D: $97. compared to one hour of direct labour time
for Product B.
Chapter 05 .400 units = $18. the unit product cost of each product would be:
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
Learning Objective: 5
Learning Objective: 7
Chapter 05 .Activity-Based Costing: A Tool to Aid Decision Making
5-80
Using activity-based costing.880 DLHs = $11. the unit product costs are:
b) The overhead rates for each activity centre are as follows:
The overhead cost charged to each product is:
Overhead cost per unit:
Product C: $63.080/3.
Product H is produced on an automated production line.Activity-Based Costing: A Tool to Aid Decision Making
5-81
117. Product B and Product H.

000 units of Product B during the current year. Unit costs for
materials and
direct labour are:
Required:
a) Compute the predetermined overhead rate under the current method of
allocation. The company
estimated it would incur $450. determine the unit
product cost of
each product for the current year.Activity-Based Costing: A Tool to Aid Decision Making
5-82
a) The company expects to work 45.Overhead is currently assigned to the products on the basis of direct labour
hours. the unit product cost of each product would be:
b) The overhead rates are computed as follows:
The overhead cost attributable to each product is:
Chapter 05 .Activity-Based Costing: A Tool to Aid Decision Making
.
b) The company's overhead costs can be attributed to four major activities.
These activities and
the amount of overhead cost attributable to each for the current year are given
below:
Using the data above and an activity-based costing approach.000 direct labour hours during the current
year. and
determine the unit product cost of each product for the current year.000/45.000 DLHs = $10.500 units of
Product H and 30.
Chapter 05 .000 in manufacturing overhead costs and produce
7.00/DLH
Using this overhead rate. computed
as follows:
Using these hours as a base. the predetermined overhead using direct labour
hours would be:
Predetermined overhead rate = $450.

. and
determine the unit product cost of each product for the current year.000 units = $6.
Product H: $260.
These activities and
the amount of overhead cost attributable to each for the current year are given
below:
Using the data above and an activity-based costing approach.Activity-Based Costing: A Tool to Aid Decision Making
5-84
118.000 in manufacturing overhead costs and produce
5. requiring three
hours of direct
labour time per unit to manufacture. Product A and Product B. The company
estimated it would incur $396.5-83
Overhead cost per unit:
Product B: $189.236/30. having been developed as an attempt to enter a market
closely related to that
of Product A. the unit product cost of each product would be:
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
Learning Objective: 5
Learning Objective: 7
Chapter 05 . Flyer Corporation manufactures two products.
Overhead is currently assigned to the products on the basis of direct labour
hours.500 units = $34.3079/unit.500 units of
Product B and 22.
Product B is of
fairly recent origin.7685/unit.
Using activity-based costing. determine the unit
product cost of
each product for the current year. Product B is the more complex of the two products.000 units of Product A during the current year. Product B is produced on an automated production line. Unit costs for
materials and
direct labour are:
Required:
a) Compute the predetermined overhead rate under the current method of
allocation. compared to one and one-half hours of
direct labour time
for Product A.764/7.
b) The company's overhead costs can be attributed to four major activities.

5-87
119. the unit product cost of each product would be:
b) The overhead rates are computed as follows:
The overhead cost attributable to each product is:
. EMD Corporation manufactures two products. Product S and Product W.
Product W is of
fairly recent origin.000/40.50/DLH
Using this overhead rate.
Overhead is currently assigned to the products on the basis of direct labour
hours.
These activities and
the amount of overhead cost attributable to each for the current year are given
below:
Using the data above and an activity-based costing approach.000 units of Product S during the current year. computed
as follows:
Using these hours as a base.000 direct labour hours during the current
year. Unit cost for
materials and
direct labour are:
Required:
a) Compute the predetermined overhead rate under the current method of
allocation. the predetermined overhead using direct labour
hours would be:
Predetermined overhead rate = $500.000 in manufacturing overhead costs and produce
10. compared to a half-hour of direct labour time
for Product S.000 DLHs = $12.000 units of
Product W and 60. determine the unit
product cost of
each product for the current year.
Product W is produced on an automated production line. and
determine the unit product cost of each product for the current year. requiring one
hour of direct
labour time per unit to manufacture.
b) The company's overhead costs can be attributed to four major activities. The company
estimated it would incur $500.
Chapter 05 . having been developed as an attempt to enter a market
closely related to that
of Product S. Product W is the more complex of the two products.Activity-Based Costing: A Tool to Aid Decision Making
5-88
a) The company expects to work 40.

Activity-Based Costing: A Tool to Aid Decision Making
5-91
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
Learning Objective: 3
Chapter 05 .)
Chapter 05 .Activity-Based Costing: A Tool to Aid Decision Making
. Estimated costs and activities for the current
year are presented
below for the three activity centres:
Actual costs and activities for the current year were as follows:
Required:
a) How much total overhead was applied to products during the year?
b) By how much was overhead overapplied or underapplied? (Be sure to clearly
label your
answer as to whether the overhead was overapplied or underapplied for each
activity centre as
well as for the total.Chapter 05 .
The company has three activity cost pools and applies overhead using
predetermined overhead
rates for each activity cost pool. Eaker Company uses activity-based costing to compute product costs for
external reports.Activity-Based Costing: A Tool to Aid Decision Making
5-92
121.

using
only one unit-level cost driver. Inc. by how
much (in terms of total allocated/applied manufacturing overhead cost). using
the activity-based-costing (ABC) method.Activity-Based Costing: A Tool to Aid Decision Making
5-94
122. Compared to the ABC
method. if any.000 units of the XR7 model and 8.
d) Assume Kya. the XR7
model and the
ZD5 model.000 units of the ZD5 model for
2005 follow:
Required:
a) Identify and briefly explain each of the three cost drivers as either unit-level or
batch-level or
product-level or organization-sustaining level.Activity-Based Costing: A Tool to Aid Decision Making
5-95
a) Number of setup is a batch-level activity in the sense that machine has to be
setup for each
. Kya. manufactures two models of high-pressure steam valves. Inc. Budgeted manufacturing overhead cost and operating data
regarding production
and sales of 2.
Chapter 05 .
c) Calculate the budgeted manufacturing overhead cost for each unit of the two
models. will use only the unit-level driver.
b) Calculate the budgeted manufacturing overhead cost for each unit of the two
models.5-93
a) The overhead rates for each activity centre are as follows:
The amount of overhead applied to production is determined as follows:
b) The amount of underapplied (overapplied) for each centre and all activity
centres is as
follows:
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 2
Learning Objective: 3
Learning Objective: 7
Chapter 05 .
will the total
output of each model be either under-costed or over-costed?
e) Is the result obtained in part (d) above consistent with your expectations?
Explain.

000) = $10 per DLH
d)
e) The result in part (d) above is consistent with expectations.Activity-Based Costing: A Tool to Aid Decision Making
5-96
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
Learning Objective: 5
Learning Objective: 7
123.000/40.
b) How might the use of ABC based on maximum capacity activity level enhance
a firm's
ability to compete on price? Explain.200 per machine setup
Vendor negotiations ($200.
a) Use of maximum capacity activity level is consistent with the ABC method.
b) Predetermined rate = $1. Direct labour is a traditional unit-level activity that is performed on each
unit of output.000/250) = $3.000/1.
Chapter 05 .
NOT for idle
capacity. budgeted (same as expected) or maximum
capacity. ZD5 Model) while it under-costs the low-volume
product (in this
case XR7 Model). It
will ensure a
. is
consistent with ABC? Explain.000) = $200 per part
Assembly ($400.000/40. This is the result obtained in part (d) above.000 DLHs
= $35/DLH
c) Rates:
setups ($800. use of
only unit-level cost drivers such as direct labour hours generally tends to overcost the high
volume product (in this case. Number of parts is a productlevel activity
because the vendor negotiation costs increase with the number of different
vendors to be
sourced.
Required:
a) The use of which activity level. Activity-based-costing (ABC) charges products for the cost of capacity used.400. In comparison with
ABC.batch independent of the number units in a batch.

The company is considering using a variation of activity-based costing to
determine its unit
product costs for external reports. (Appendix 5B) Werger Manufacturing Corporation has a traditional costing
system in
which it applies manufacturing overhead to its products using a predetermined
overhead rate
based on direct labour-hours (DLHs).
by definition.reasonably stable (if not constant) activity rate regardless of the expected level of
activity. A lower activity rate when applied to a lessthan-capacity
expected or actual activity level will ensure that cost of idle capacity is not
charged to products. Since.960 and the
company's estimated total direct labour-hours for the year is 22. W82R and
L48S.
This is
especially important in diverse multiple product firms where product emphasis
decisions are
routinely made.Activity-Based Costing: A Tool to Aid Decision Making
5-97
124.
Accurate product cost information is a good starting point for competitive pricing.
b) Since the cost of idle capacity will not be charged to products. Data for this proposed activity-based costing
system appear
. about
which it has provided the following data:
The company's estimated total manufacturing overhead for the year is
$1. products are
unlikely to be
overcosted.521.000.
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 1
Learning Objective: 4
Learning Objective: 7
Chapter 05 . The fact that ABC generally achieves more accurate product costs
(because it uses
multiple unit-level and non unit-level cost drivers) also avoids undercosting or
overcosting. The company has two products. expected level of activity cannot exceed the maximum capacity. the
resulting
activity rate is also likely to be lower.

000 DLHs = $41. B40W and C63J. Determine the unit product cost of each of the company's two products under
activity-based
costing system. Determine the unit product cost of each of the company's two products under
the traditional
costing system.656.
Chapter 05 .656. Data for this proposed activity-based costing
system appear
below:
Required:
a. Traditional Unit Product Costs
Predetermined overhead rate = $2.000 64. (Appendix 5B) Torri Manufacturing Corporation has a traditional costing
system in which
it applies manufacturing overhead to its products using a predetermined
overhead rate based on
direct labour-hours (DLHs).5-100
125.
The company is considering using a variation of activity-based costing to
determine its unit
product costs for external reports.
b.50 per DLH
b.Activity-Based Costing: A Tool to Aid Decision Making
5-101
a.
about which it
has provided the following data:
The company's estimated total manufacturing overhead for the year is
$2. The company has two products. ABC Unit Product Costs
Overhead cost for B40W
Overhead cost for C63J
.000.000 and the
company's estimated total direct labour-hours for the year is 64.

Activity-Based Costing: A Tool to Aid Decision Making
. Determine the manufacturing overhead cost per unit of each of the company's
two products
under the traditional costing system.000. Data for this proposed activity-based costing
system appear
below:
Required:
a.Activity-Based Costing: A Tool to Aid Decision Making
5-103
126.
about which it
has provided the following data:
The company's estimated total manufacturing overhead for the year is
$1.Activity-Based Costing: A Tool to Aid Decision Making
5-102
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 2
Learning Objective: 3
Learning Objective: 5
Learning Objective: 7
Chapter 05 .464. Determine the manufacturing overhead cost per unit of each of the company's
two products
under activity-based costing system.
Chapter 05 . The company has two products. H16Z and P25P. (Appendix 5B) Welk Manufacturing Corporation has a traditional costing
system in which
it applies manufacturing overhead to its products using a predetermined
overhead rate based on
direct labour-hours (DLHs).480 and the
company's estimated total direct labour-hours for the year is 24.Chapter 05 .
b.
The company is considering using a variation of activity-based costing to
determine its unit
product costs for external reports.

(Appendix 5B) Bullie Manufacturing Corporation has a traditional costing
system in
which it applies manufacturing overhead to its products using a predetermined
overhead rate
based on direct labour-hours (DLHs). ABC Manufacturing Overhead Costs
Overhead cost for H16Z
Overhead cost for P25P
Chapter 05 .5-104
a.650 and the
company's estimated total direct labour-hours for the year is 35. Data for this proposed activity-based costing
system appear
below:
Required:
. about
which it has provided the following data:
The company's estimated total manufacturing overhead for the year is
$1.464.Activity-Based Costing: A Tool to Aid Decision Making
5-106
127.000 DLHs = $61.000. D31X and
U75X.
The company is considering using a variation of activity-based costing to
determine its unit
product costs for external reports. Traditional Manufacturing Overhead Costs
Predetermined overhead rate = $1.Activity-Based Costing: A Tool to Aid Decision Making
5-105
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 2
Learning Objective: 3
Learning Objective: 5
Learning Objective: 7
Chapter 05 .02 per DLH
b.480 24. The company has two products.147.

Identify each of the three cost drivers as either unit-level.
Decision: No
Analysis and/or calculations:
Preliminary analysis:
The overhead allocation rate = $51 per DLH.000/(1. i. productlevel.e. Mike charges a fee of $100 per hour for each service and
can devote a
maximum of 4.128. number of transactions with clients. the decision can be based only on
allocated cost per DLH
. How might Mike's product/service emphasis decision in Part a above be
altered if he were to
allocate all the overhead costs using activity-based costing and the three cost
drivers.
b. Should Mike emphasize one service more than the other if Mike were to
allocate all the
overhead costs using direct-labours as the only overhead cost driver (1.
Chapter 05 .
number of clients. $204. Mike Kyekyeku is a sole proprietorship that provides consulting and tax
preparation
services to its clients.300 + 2. including any necessary explanation. batch-level. that is.
Note: Since the
$100 billing rate per DLH is the same. or organization-sustaining.700
for Consulting)? Support your decision with the relevant calculations and/or
analysis.700)
The two services generate the same profit for each hour of Mike's scarce time.300 for
Tax and 2.000 hours annually to his clients.
c. He reported the following
revenues and
expenses for 2008:
Being an accountant. Mike kept good records of the following data for 2008:
(i).
(ii).Activity-Based Costing: A Tool to Aid Decision Making
5-110
a.
Required:
a. and computer hours?
Show all your
supporting calculations and/or analysis.
customer-level.

$72.
** Same as the $100 billing rate less the $51 allocation rate. $48.800/2.000/500)
*** same as using activity rate of $30 per computer hour (i.89 compared to $16. Preliminary analysis (ABC)
Decision:
Consulting should receive greater emphasis since every hour of Mike's scarce
time generates a
profit of $64. allocate in proportion to Tax and Consulting at 32.000/120)
** same as using activity rate of $144 per transactions (i.
base decision on total allocated cost for each service together with an
explanation that
consulting has less allocated cost and also fewer number of direct labour hours.e.($51) which is the same for both services
* Alternatively.00 for Tax.
b.00 for Tax. $84..
respectively.
Number of clients: Customer-level
Number of transactions with clients: Unit-level
Computer hours: Unit-level
Chapter 05 . (Note: The decision can be based
only on the total
allocated cost per DLH (that is.200/1.700
= $35.
* same as using activity rate of $700 per client (i.e.
Alternatively.5% and 67. $109.000/1.11 for
Consulting) since the billing rate per DLH of $100 is the same for both services.5%..e. $94.300 = $84.600)
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
Learning Objective: 4
Learning Objective: 5
Learning Objective: 7
..Activity-Based Costing: A Tool to Aid Decision Making
5-111
c.

4. Which of the following best describes the direct materials purchase budget?
A. It is the beginning point in the budget process.
B. It must provide for the desired ending inventory as well as for production.
C. It is accompanied by a schedule of cash collections.
D. It is completed after the cash budget.
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 2

7. There are various budgets within the master budget. One of these budgets is
the production
budget. Which of the following best describes the production budget?

A. It details the required direct labour hours.
B. It details the required raw materials purchases.
C. It is calculated based on the sales budget and the desired ending inventory.
D. It summarizes the costs of producing units for the budget period.
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 2

8. Which of the following best describes a typical participative budget?
A. It is NOT subject to review by higher levels of management since to do so
would contradict
the participative aspect of the budgeting processing.
B. It is NOT subject to review by higher levels of management except in specific
cases where
the input of higher management is required.
C. It is subject to review by higher levels of management in order to prevent the
budgets from
becoming too loose.
D. It is NOT critical to the success of a budgeting program.
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 1

9. What is a continuous (or perpetual) budget?
A. It is prepared for a range of activity so that the budget can be adjusted for
changes in activity.
B. It is a plan that is updated monthly or quarterly, dropping one period and
adding another.
C. It is a strategic plan that does not change.
D. It is used in companies that experience no change in sales.
Bloom's Level: Remember
Difficulty: Medium
Learning Objective: 1

Chapter 09 - Budgeting
9-4

10. Which of the following best describes a method of budgeting in which the
cost of each
program must be justified every year?
A. Operational budgeting.
B. Zero-based budgeting.
C. Continuous budgeting.
D. Responsibility accounting.
Bloom's Level: Remember
Difficulty: Easy

Learning Objective: 1

11. Fairmont Inc. uses an accounting system that charges costs to the manager
who has been
delegated the authority to make decisions concerning the costs. For example, if
the sales
manager accepts a rush order that will result in higher than normal manufacturing
costs, these
additional costs are charged to the sales manager because the authority to
accept or decline the
rush order was given to the sales manager. What best describes this type of an
accounting
system?
A. Responsibility accounting.
B. Contribution accounting.
C. Absorption accounting.
D. Operational budgeting.
Bloom's Level: Remember
Difficulty: Easy
Learning Objective: 1

Chapter 09 - Budgeting
9-5

12. Parlee Company's sales are 30% in cash and 70% on credit. Sixty percent of
the credit sales
are collected in the month of sale, 25% in the month following sale, and 12% in
the second
month following sale. The remainder is uncollectible. The following are budgeted
sales data:
What would be the budgeted total cash receipts in April?
A. $27,230.
B. $36,230.
C. $38,900.
D. $47,900.
30,000*.3 + 30,000*.7*.6 + 70,000*.7*.12 + 50,000*.7*.25
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 2

13. Budgeted sales in Allen Company over the next four months are given below:
Twenty-five percent of the company's sales are for cash, and 75% are on
account. Collections
for sales on account follow a stable pattern as follows: 50% of a month's sales
are collected in

14. The PDQ Company makes collections on credit sales according to the
following schedule:
25% in month of sale
70% in month following sale
4% in second month following sale
1% uncollectible
The following sales have been budgeted:
What would be the cash collections in June?
A. $110,000.
B. $111,500.
C. $113,400.
D. $115,500.
100,000*.04 + 120,000*.70 + 110,000*.25
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2

Chapter 09 - Budgeting
9-7

15. Orion Corporation is preparing a cash budget for the six months beginning
January 1.
Shown below are the company's expected collection pattern and the budgeted
sales for the
period:
Expected collection pattern:
65% collected in the month of sale
20% collected in the month after sale
10% collected in the second month after sale
4% collected in the third month after sale
1% uncollectible
What would be the estimated total cash collections during April from sales and
accounts
receivables?
A. $155,900.
B. $167,000.
C. $171,666.
D. $173,400.
160,000*.04 + 185,000*.10 + 190,000*.20 + 170,000*.65
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2

Chapter 09 - Budgeting
9-8

16. Pardee Company plans to sell 12,000 units during the month of August. If the
company has
2,500 units on hand at the start of the month, and plans to have 2,000 units on
hand at the end of
the month, how many units must be produced during the month?

17. Modesto Company produces and sells Product AlphaB. To guard against
stockouts, the
company requires that 20% of the next month's sales be on hand at the end of
each month.
Budgeted sales of Product AlphaB over the next four months are:
What would be the budgeted production for August?
A. 50,000 units.
B. 58,000 units.
C. 62,000 units.
D. 70,000 units.
60,000 + 50,000*.20 - 60,000*.20
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 2

Chapter 09 - Budgeting
9-9

18. Friden Company has budgeted sales and production over the next quarter as
follows:
On April 1, the company has 20,000 units of product on hand. A minimum of 20%
of the next
month's sales needs (in units) must be on hand at the end of each month. July
sales are expected
to be 140,000 units. What would be the budgeted sales for June (in units)?
A. 128,000 units.
B. 160,000 units.
C. 184,000 units.
D. 188,000 units.
May EI = 128,000 + 120,000*.20 - 128,000 = $32,000 = June BI. June sales =
156,000 + 32,000
- 140,000*.20.
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 2

19. Walsh Company expects sales of Product W to be 60,000 units in April,
75,000 units in
May, and 70,000 units in June. The company desires that the inventory on hand
at the end of
each month be equal to 40% of the next month's expected unit sales. Due to
excessive
production during March, there were 25,000 units of Product W in the ending
inventory on
March 31. Given this information, what should be Walsh Company's production
of Product W
for the month of April?
A. 60,000 units.
B. 65,000 units.
C. 66,000 units.
D. 75,000 units.
60,000 + 75,000*.40 - 25,000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2

Chapter 09 - Budgeting
9-10

20. Superior Industries' sales budget shows quarterly sales for the next year as
follows:
Company policy is to have a finished goods inventory at the end of each quarter
equal to 20% of
the next quarter's sales. What should be the budgeted production for the second
quarter?
A. 7,200 units.
B. 8,000 units.
C. 8,400 units.
D. 8,800 units.
8,000 + 12,000*.20 - 8,000*.20
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2

21. The Tobler Company has budgeted production for next year as follows:
Four kilograms of raw materials are required for each unit produced. At the start
of the year,
raw materials on hand total 4,000 kilograms. The raw materials inventory at the
end of each

22. Marple Company's budgeted production in units and budgeted raw materials
purchases over
the next three months are given below:
Two kilograms of raw materials are required to produce one unit of product. The
company
wants raw materials on hand at the end of each month equal to 30% of the
following month's
production needs. The company is expected to have 36,000 kilograms of raw
materials on hand
on January 1. What should be the budgeted production for February?
A. 75,000 units.
B. 82,500 units.
C. 105,000 units.
D. 150,000 units.
Desired EI = 129,000 + 36,000 - 60,000*2 = 45,000 kg. Production in Feb. =
45,000/.30/2
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 2

18.500 units.000 decrease. Purchase . If the company
has budgeted to
purchase $18.
.000*.Chapter 09 . ABC Company has a cash balance of $9.000 on April 1.40.Budgeting
9-12
23.
B. $15.000 increase. $6. expected cash receipts are
$45.500 units.000.500 units.Budgeting
9-13
25.000 in sales for the
month of
December.000.000*.000 in merchandise during December.000 increase.
D.
18. $10. what is the budgeted
change in inventory
levels over the month of December?
A.000 . 22.25 .000*. During April. What amount will the
company need to
borrow during April?
A.
C. 17.
Change in inventory = Bud.000 + 16.30
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 2
Chapter 09 . The Willsey Merchandise Company has budgeted $40. The company must
maintain a
minimum cash balance of $6.000. 18. The finished goods inventory at the start of the year is
3. Expected
cash disbursements during the month total $52.
C. 13.000 decrease. $2.
D. $22. The company's cost of goods sold is 30% of sales. The Waverly Company has budgeted sales for next year as follows:
The ending inventory of finished goods for each quarter should equal 25% of the
next quarter's
budgeted sales in units.CGS = 18.000 units.000 units.25
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 2
24. What
should be the scheduled production for the third quarter?
A.000.
B.

000*. Budgeted
sales for April
are $300. had the following results for May.
100. $110. $6. $133.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
KAB Inc. $110. $113.
D.000. Gross margin is budgeted at 30% of sales dollars.
C.
C. The Stacy Company makes and sells a single product: Product R.000*..60 + 110. The budgets for
June and July
are also given.Budgeting
9-14
27. $50.800.000.000.
C.
.000.000*.40.000.000. $78. Borrowing = 6. $4.
B.2.000 = 2000.
300.
Unadjusted cash = 9. a small retail store.30
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
Chapter 09 .08 + 120.000.
D.000.000*.000.30 .000. If the net
income for April is
budgeted at $40. $8.
D. $102. what are the budgeted selling and administrative
expenses?
A. $105.000 + 45.52.000.
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
26.000 .B.
B.000 . Avril Company makes collections on sales according to the following
schedule:
30% in the month of sale
60% in the month following sale
8% in the second month following sale
The following sales are expected:
What should be the budgeted cash collections in March?
A.000.333.

Budgeting
9-15
28.000*.
Chapter 09 .000
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 2
Chapter 09 . $41.000. May purchases = June budgeted CGS.20 + 40.
C.
Suppliers of the goods are paid in the month following the purchase.000 + 20.000.
B.500. $40.
42. $32.Budgeting
.500.) The goods that are sold are purchased in the month
prior to sale. The
operating expenses
are paid in the month of the sale.
Cash
disbursements = 20.000*.
D. $41.
(There are no bad debts. $43. $42.Sales are collected 80% in the month of the sale and the balance in the month
following the sale.
Purchases in May are paid for in June. $40.000. $40. What should be the cash disbursements during the month of June for goods
purchased for
resale and for operating expenses?
A.000. What should be the amount of cash collected during the month of June?
A.
D.
C.80
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
29.
B.400.000.

In a budgeted income statement for the month of February.24.Budgeting
9-17
31.
30. and fixed expenses (all
depreciation) should be
$3. On that date.
C.000. All purchases of
merchandise
inventory must be paid in the month of purchase. Expected sales
for the first four
months appear below:
The company desires that the merchandise inventory on hand at the end of each
month be equal
to 50% of the next month's merchandise sales (stated at cost)..000 * (1 .10 . For purposes of
budget preparation.
. $1.200.800.3. $0.
the balance will be on credit. what would be the merchandise inventory on
February 28?
A.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
Chapter 09 .
assume that the company's cost of goods sold is 60% of sales.9-16
Justin's Plant Store.200.60) .
C.000*.800. a retailer. $4. In a budgeted balance sheet.000 per month.500. Cash payments for the variable operating expenses are made
during the
month the expenses are incurred. the
only assets
were $16.
24. $9.
B. Seventy-five percent of the credit sales should be
collected in the
month following the month of sale. with the balance collected in the following
month. what would be
the net income?
A. Sixty percent of all sales should
be for cash.500 in merchandise inventory.000 in cash and $3. started operations on January 1. Variable
operating expenses should be 10% of sales.
B. $4.
D. $3. $7.

D.
Law Company takes full advantage of the 3% discount allowed on purchases
paid for by the
end of the following month.000*.
150.000 * (1 . $87.
Chapter 09 .000.
The company expects sales in April of $150.000 and inventory purchases of
$100. and 8% in the second month following sale. $139. $100.000.30 + 100.300.
B.000. What would be the expected cash disbursements during April for inventory
purchases?
A. and on April
1 was $35.Collections from Law Company's customers are normally 60% in the month of
sale. Law Company's cash balance on March 1 was
$43.
B.000*.Budgeting
9-19
35.000 is depreciation.000*.03)
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
.
D.
C. 30% in the
month following sale. What would be the expected cash collections from customers during April?
A.08
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
36.000. $137.
C. $97.
Operating expenses for the month of April are expected to be $38. The balance is
uncollectible.000.000.000.000.000. of which
$15. The remaining operating expenses are
variable with respect
to the amount of sales in dollars.
90. Those operating expenses requiring a cash
outlay are paid for
during the month incurred. $90.000.60 + 130. $150.000 is
salaries and $8..600. $117.

000(#59)
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 2
The LaPann Company has obtained the following sales forecast data:
The regular pattern of collection of credit sales is 20% in the month of sale.000 + 137.700.700.700.000.000*. $148. What is the budgeted accounts receivable balance on September 30?
A.
C.
D.37.000.000.8.10
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
.
D.
180. $190. $126.000*.
B.000.
B. What would be the expected cash disbursements during April for operating
expenses?
A.
C.
C.80 + 220.700.000.000
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
Chapter 09 .000 . $38. and the remainder in the second month following the
month of sale.000(#57) . $19.000. 70%
in the month
following the month of sale.
38.Budgeting
9-20
38.
35.
B. $30.300(#58) .
There are no bad debts.30. $28.87. $62.
D.000. What would be the expected cash balance on April 30?
A. $23. $54. $15.000.
39. $166.

B. $278.
of which
$50.000 + 200.500.
60. $226.
D.
B.Chapter 09 .70 + 220. the following information has been assembled:
Collections on sales:
60% in month of sale
30% in month following sale
10% in second month following sale
The accounts receivable balance on January 1 of the current year was $70. What are the budgeted cash receipts for October?
A.000*. $331.
Chapter 09 . What would be the total cash collected by LaGrange Company during
January?
A. $188. $248.000*.
.000*.20 + 180.Budgeting
9-22
41. To this end.000.000 represents
uncollected November
sales.000 represents uncollected December sales and $20.
C.000. $261.000.10
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
The LaGrange Company had the following budgeted sales for the first half of the
current year:
The company is in the process of preparing a cash budget and must determine
the expected cash
collections by month.000.500.Budgeting
9-21
40.000.

4. 5. What is the desired ending inventory for December?
A.
C. 960 units.800 + 5.
B.890 units.
C.
5. 5.
D.
D. 5.15
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
Roberts Enterprises has budgeted sales in units for the next five months as
follows:
Past experience has shown that the ending inventory for each month must be
equal to 10% of
the next month's sales in units.800*.15 .200*.Budgeting
9-24
45. The inventory on May 31 contained 410 units.
The company
needs to prepare a production budget for the second quarter of the year.600
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
46.
.670 units.070 units. What are the total units to be produced in October?
A.Learning Objective: 2
Barley Enterprises has budgeted unit sales for the next four months as follows:
The ending inventory for each month should be equal to 15% of the next month's
sales in units. 870 units. 4. 690 units. 780 units.530 units.
Chapter 09 .
The inventory on September 30 was below this level and contained only 600
units.
B.

600 *. 5. What is the total number of units to be produced in February?
A. 5.400*.
C.
D. 460 units.400 units. 720 units. 380 units.
4.
4. 460 units.200*. 380 units. The
company needs to prepare a production budget for the second quarter of the
year. The inventory on December 31 contained 400
units. What is the opening inventory in units for April?
A.120 units. Each unit of
Product T
requires 1.10 + 5. 540 units. What is the desired ending inventory for March?
A.10
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
The LFM Company makes and sells a single product: Product T.220 units.
D.
5.600 units.600 *.Budgeting
9-27
52.3 hours of labour at a labour rate of $9.
C. 6.
50. LFM Company
needs to prepare
a Direct Labour Budget for the second quarter of next year.
B.10
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
51.
C. 4.400 + 7.
53.Past experience has shown that the ending inventory for each month must be
equal to 10% of
the next month's sales in units.
D.10 per hour.
B. What would be the budgeted direct labour cost per unit of Product T?
. 720 units. 5.
B.10
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
Chapter 09 .580 units.

Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
Chapter 09 . $227. $293.A. $7.031.000 units of Product T in June.00.
D.
respectively.
C.10.
1.
25. $11.384.40.
B.
The finished
goods inventories on June 1 and June 30 were budgeted at 500 and 700 units. $9. The
company is in
the process of preparing its Selling and Administrative Expense Budget for the
last half of the
year.Budgeting
9-28
54. The following budget data are available:
All expenses other than depreciation are paid in cash in the month they are
incurred. Product SW.
B.83.10
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
The International Company makes and sells only one product.10/hr.750.3 hrs * $9.
Chapter 09 .
C.
D. $304.000 * 1. The company has budgeted to produce 25.500.3 * 9. $295.
What would be the budgeted direct labour costs incurred in June?
A.Budgeting
9-29
. $10.

B. $123.250.
B. $134.250. then how much was the total selling and administrative budget for
November?
A. $123.000
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
Chapter 09 .
D.250.25 + 78.250. If the budgeted cash disbursements for selling and administrative expenses
for November
total $123.Budgeting
9-30
58.000.250. $78. what would
be the total budgeted fixed selling and administrative expenses for September?
A.250.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
56.
what will be the
total budgeted variable selling and administrative expenses for October?
A.000 units of Product SW in July.
C.000.
20.000.000 units of Product SW in October.000.000 * 2.000. $40. $187.25
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
57.25. $78. $56.
.
D. Total FC = $78.
Total VC = $2.250.000.
B. If the company has budgeted to sell 20.000 units of Product SW in
September. what
will be the
total budgeted selling and administrative expenses for July?
A.
D. $168. If the company has budgeted to sell 25. If the company has budgeted to sell 24. 25.250. $54. $48. $134.000. $56.250 + 11.
B.
C.250.55.
C.
123.000 * 2. $45.

The Culver Company is preparing its Manufacturing Overhead Budget for the
third quarter of
the year. Budgeted variable factory overhead is $3.00 per unit produced;
budgeted fixed factory
overhead is $75,000 per month, with $16,000 of this amount being factory
depreciation.
59. If the budgeted production for July is 6,000 units, what is the total budgeted
factory
overhead for July?
A. $18,000.
B. $75,000.
C. $93,000.
D. $109,000.
6,000*3 + 75,000
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2

The Bandeiras Company, a merchandising firm, has budgeted its activity for
December
according to the following information:
I. Sales at $550,000, all for cash.
II. Merchandise inventory on November 30 was $300,000.
III. Budgeted depreciation for December is $35,000.
IV. The cash balance at December 1 was $25,000.
V. Selling and administrative expenses are budgeted at $60,000 for December
and are paid in
cash.
VI. The planned merchandise inventory on December 31 is $270,000.
VII. The invoice cost for merchandise purchases represents 75% of the sales
price. All
purchases are paid for in cash.

A cash budget by quarters for the Carney Company is given below (note that
some data are
missing). Missing data amounts have been keyed with either question marks or
lowercase
letters (a, b, c, etc.); these lowercase letters will be referred to in the questions
that follow. (It
may be necessary to calculate a value for items where a question mark appears.)
The company
requires a minimum cash balance of at least $10,000 to start a quarter. All data
are in thousands
of dollars.

71. Which of the following is a major weakness of flexible budgets?
A. They are geared only to a single level of activity.
B. They give subordinates too much flexibility.
C. They force the manager to compare actual costs at one level of activity to
budgeted costs at a
different level of activity.
D. Their construction requires the use of one activity base common to all the
different cost
items.
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 3

Pollitt Potato Packers has a flexible budget for manufacturing overhead that is
based on direct
labour hours. The following overhead costs appear on the flexible budget at the
200,000-hour
level of activity:
72. At an activity level of 180,000 direct labour hours, what amount would the
flexible budget
estimate for indirect labour cost?
A. $108,000.
B. $144,000.
C. $162,000.

Budgets are used for planning rather than for control of operations. The participative budget can be a very effective control device in an
organization.
FALSE
Bloom's Level: Remember
Difficulty: Medium
Learning Objective: 1
102.
FALSE
Bloom's Level: Remember
Difficulty: Easy
Learning Objective: 1
104.Budgeting
9-51
101. Control involves developing objectives and preparing the various budgets to
achieve those
objectives. One of the distinct advantages of a budget is that it can help to uncover
potential
bottlenecks before they occur. but
is constantly
adding a new month onto the end of the 12-month period as the current month is
completed.
TRUE
Bloom's Level: Remember
Difficulty: Easy
Learning Objective: 1
103.Chapter 09 .
TRUE
Bloom's Level: Remember
Difficulty: Easy
Learning Objective: 1
. A continuous or perpetual budget is one that covers a 12-month period.
TRUE
Bloom's Level: Remember
Difficulty: Easy
Learning Objective: 1
105.

Budgeting
9-52
106.
TRUE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 2
108.Budgeting
9-53
110. Sales forecasts are drawn up after the cash budget has been completed
because it is only at
that time that the funds available for marketing are known.
FALSE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 2
. In the merchandise purchases budget.Chapter 09 . A production budget is to a manufacturing firm as a merchandise purchases
budget is to a
merchandising firm.
FALSE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 2
107. the required purchases (in units) for
a period can be
determined by subtracting the beginning merchandise inventory (in units) from
the budgeted
sales (in units).
FALSE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 2
109. The direct materials to be purchased for a period can be obtained by
subtracting the desired
ending inventory of direct materials from the total direct materials needed for the
period. the total direct labour cost for a
budget period
is computed by taking the total direct labour hours needed to make the budgeted
output of
completed units and multiplying them by the direct labour wage rate. In companies that have "no lay-off" policies.
FALSE
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 2
Chapter 09 .

In a performance report. actual costs should be compared to budgeted
costs at the original
budgeted activity level. Zero-based budgeting requires managers to justify all costs of programs as
if these
programs were being proposed for the first time. but once a budget is set the budget figures are not changed if actual
activity later proves
to be different than budgeted activity. it is generally best for top
management to
accept all budget estimates without question in order to minimize adverse
behavioural
responses from employees. A flexible budget is "flexible" in the sense that a budget can be prepared for
any level of
activity.
.
TRUE
Bloom's Level: Remember
Difficulty: Easy
Learning Objective: 1
115.
FALSE
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 1
113. The effect of responsibility accounting is to personalize the accounting
system.
FALSE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 2
112.
TRUE
Bloom's Level: Remember
Difficulty: Easy
Learning Objective: 1
Chapter 09 .111.Budgeting
9-54
114. When using the participative budget approach.
FALSE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 3
116. The beginning cash balance is not included on the cash budget since the
cash budget deals
exclusively with cash flows rather than with balance sheet amounts.

40% are paid in the month in which they are incurred and the balance in the
following month. Cash collections from sales are
budgeted at 60% in
the month of sale. 30% in the month following the month of sale.Budgeting
9-56
Essay Questions
122. Accounts receivable on April 1 totalled
$500.
Bloom's Level: Apply
.
b) Prepare a schedule for each month showing budgeted cash receipts for Clay
Company.000
($90. and the
remaining 10% in the
second month following the month of sale. Clay Company has projected sales and production in units for the second
quarter of the
coming year as follows:
Cash-related production costs are budgeted at $5 per unit produced.000. which will be paid in April.000 from February's sales and the remainder from March). The
accounts payable
balance on March 31 totals $190.000 per month.
Chapter 09 .Budgeting
9-57
Payments relating to the prior month (March) in April represent the balance of
accounts payable
at March 31. Of these
production costs.
Selling and administrative expenses will amount to $100.
All units are sold on account for $14 each.Chapter 09 .
Required:
a) Prepare a schedule for each month showing budgeted cash disbursements for
Clay Company.

Of these
production costs.000 from February's sales and the remainder from March).000. and the
remaining 10% in the
second month following the month of sale.
Chapter 09 .
All units are sold on account for $16 each. Accounts receivable on April 1 totalled
$520.Difficulty: Medium
Learning Objective: 2
Chapter 09 .
Required:
a) Prepare a schedule for each month showing budgeted cash disbursements for
Tilson
Company.000
($100. which will be paid in April.
Selling and administrative expenses will amount to $110.
b) Prepare a schedule for each month showing budgeted cash receipts for Tilson
Company.Budgeting
9-59
Payments relating to the prior month (March) in April represent the balance of
accounts payable
. Tilson Company has projected sales and production in units for the second
quarter of the
coming year as follows:
Cash-related production costs are budgeted at $7 per unit produced.000 per month.
40% are paid in the month in which they are incurred and the balance in the
following month. Cash collections from sales are
budgeted at 60% in
the month of sale. 30% in the month following the month of sale.Budgeting
9-58
123. The
accounts payable
balance on March 31 totals $193.

the balance is collected in the following month.
The selling price is $2 per unit.at March 31. On March 31.
Chapter 09 . have been
budgeted as
follows for the next four months:
Streuling's board of directors has established a policy to commence in April that
the inventory
at the end of each month should contain 40% of the units required for the
following month's
budgeted sales.000
units. in units.
b) Prepare a schedule of expected cash collections for each of the months April. a merchandising firm.
May. and June.
Required:
a) Prepare a merchandise purchases budget showing how many units should be
purchased for
each of the months April. One-third of sales are paid for by customers in
the month of the
sale.Budgeting
9-61
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
. and June. May. Sales.000. had an inventory
of 38.
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
Chapter 09 . Streuling Enterprises. and it had accounts receivable totalling $85.Budgeting
9-60
124.

Required:
a) Calculate the cash that TabComp can expect to collect during April. of which the first six months of the
coming year are
presented below:
Cash sales account for 25% of TabComp's total sales. 30% of the total sales are
paid by bank
credit card.
TabComp's month-end inventory requirements for computer hardware units are
30% of the
next month's sales. Show all
of your
calculations.
The cash and bank credit card sale payments are received in the month of the
sale. and the remaining 45% are on open account (TabComp's own
charge accounts).Budgeting
9-62
125. The
cash receipts for
sales on open account are 70% in the month following the sale and 28% in the
second month
following the sale.
b) Determine the number of computer hardware units that should be ordered in
January.
TabComp prepares annual sales forecasts. Bank credit
card sales are subject to a 4% discount. TabComp Inc. The units must be ordered two months in advance due to
long lead times
quoted by the manufacturer.Chapter 09 . which is deducted immediately. the remaining are uncollectible. is a retail distributor for MZB-33 computer hardware and
related software.
. Show
all of your calculations.

Budgeting
9-63
a) The cash that TabComp can expect to collect during April is calculated below:
b) The number of units that TabComp should order in January is calculated as
follows:
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 2
Chapter 09 . using this
information and the
budgeted cash receipts you computed for part a) above.Budgeting
9-64
126. From experience. the
company has learned
that a month's sales on account are collected according to the following pattern:
The company requires a minimum cash balance of $5.
b) The following additional information has been provided for March:
Prepare a cash budget in good form for the month of March. The Doley Company has planned the following sales for the next three
months:
Sales are made 20% for cash and 80% on account. The
beginning cash
balance in March is budgeted to be $6.Budgeting
9-65
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 2
.
Required:
a) Compute the budgeted cash receipts for March.000. The company can
borrow in any dollar
amount and will not pay interest until April.
Chapter 09 .000 to start a month.Chapter 09 .

and 9% in the second month following the sale.Budgeting
9-68
. Montero pays for purchases in the month following the purchase. 20% in the
month following
the sale. Montero's cash balance on May 1 was $22. The balance is
expected to be
uncollectible.
Cash
disbursements for expenses other than merchandise purchases are expected to
be $14. a merchandising company.
b) Compute the expected cash balance on May 31. Montero Corporation.
Required:
Chapter 09 . has provided the following
budget data:
Collections from customers are normally 70% in the month of sale.Budgeting
9-66
127.000.400 for
May.Chapter 09 .
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 2
Chapter 09 .Budgeting
9-67
a) Compute the expected cash collections during May.

Budgeting
9-70
129. and March.000 units. the company
has a policy of
maintaining an ending inventory at the end of each month equal to 30% of the
next month's
. on December 31. However. Since the
production of
this specialized material by OMI's suppliers is sometimes irregular.:
The inventory of finished goods at the end of each month should equal 20% of
the next month's
sales. the company has
a policy of
maintaining an ending inventory at the end of each month equal to 30% of the
next month's
production needs.3 = 21.100.:
The inventory of finished goods at the end of each month must equal 20% of the
next month's
sales.780. the finished goods inventory totalled only
4.Budgeting
9-69
Beginning inventory. A sales budget is given below for one of the products manufactured by the
OMI Co.
Chapter 09 .
Each unit of product requires three specialized electrical switches.3 = 35. Since the
production of these
specialized switches by Key's suppliers is sometimes irregular. on December 31.600 x 0. A sales budget is given below for one of the products manufactured by the
Key Co.
February.
Each unit of product requires three kilograms of specialized material. January 1: 72. However.
Required:
Prepare a budget showing the quantity of switches to be purchased each month
for January.000 x 3) x 0.128. the finished goods inventory totalled only
4. and in total for the quarter.
Ending inventory. March 31: (39.
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 2
Chapter 09 .000 units. This requirement had been met on January 1 of the current
year.

The major difference between the two types of costs occurs in the control phase. Thus.100.000 x 0.Budgeting
9-71
Production Schedule required for purchase schedule:
Beginning inventory. This requirement had been met on January 1 of the current
year.3 = 26.
Chapter 09 .700. However.000 x 3) x 0.
Since total
variable costs are expected to change in direct proportion to changes in the level
of activity.
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 2
Chapter 09 . control of truly variable
costs can be
. if any. and March. assuming
the cost per
unit level of activity remains constant.
Required:
Explain the differences. once the level of fixed costs has
been
determined in the budgeting process. that is. during the budgeting process. This is because the budgeted costs reflect cost of
supplying
capacity. Budgeting aids planning and controlling the level of both fixed costs and
variable costs. January 1: 87. the most appropriate time to control the level of fixed costs is
when they are
being planned. the
budgeted amounts can be revised to reflect changing levels of activity.production needs.
Required:
Prepare a budget showing the quantity of material to be purchased each month
for January. and in total for the quarter. it cannot be changed in the short run in
responses to
changes in levels of activity.Budgeting
9-72
130. In theory. between the planning and controlling of fixed
costs and variable
costs.3 = 38. In essence planning and
controlling the
level of fixed costs occur at the same time.
February.
Ending inventory. March 31: (43.

Required:
Chapter 09 . The following overhead data are for a department in a large company. after-the-fact.effective after completing the budgeting process.Budgeting
9-74
Prepare a report that would be useful in assessing how well costs were
controlled in this
department.Budgeting
9-75
132.
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 3
Learning Objective: 4
Chapter 09 . that is.
Bloom's Level: Evaluate
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
Learning Objective: 4
Chapter 09 .Budgeting
9-73
131. The following overhead data are for a department in a large company.
Required:
Prepare a report that would be useful in assessing how well costs were
controlled in this
.

.
Fougere Realtors' major costs are commissions for salespersons. 2007. listing agents.
Chris Fougere. As usual.
c) As a first step in helping Chris Fougere to evaluate cost/expense control in the
organization. Fougere Realtors.
and listing
companies.Budgeting
9-77
. Inc.
Required:
a) Explain the major weakness of the performance report. specializes in home re-sales. (Note: Indicate any variance as either favourable
(F) or
unfavourable (U).department..
b) Explain clearly why all the variances for the variable expenses are
unfavourable (U).)
Chapter 09 .
the managing partner of Fougere Realtors. Inc. received a report summarizing
the performance
for the most recent year. assuming the only
cost driver is
the number of home re-sales.
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 3
Learning Objective: 4
Chapter 09 . It earns revenue from
selling fees. Its business has improved steadily over the last ten years.Budgeting
9-76
133.
complete the following for the year ended December 31.

The major flaw is with respect to the variable expenses.102.Chapter 09 . One would expect the
actual variable
expenses to be higher.127. given the higher level of actual home re-sales.
the original budgeted variable expenses are understated. By
definition.
b) All the variable expense variances are unfavourable because the correct
comparison of actual
variable expenses should be against budgeted variable expenses for the higher
level of home
re-sales. actual home re-sales of 202
versus budgeted
home re-sales of 180.Budgeting
9-79
.100/180): $3. that is.50
Automobile ($36.000/180): $200
Advertising ($171. In essence. variable
expenses are expected to change in direct proportion to changes in activity levels
(number of
home re-sales). not against budgeted variable expenses for the lower level of home resales.Budgeting
9-78
a) The major weakness of the performance report is the fact that it compares
costs at two
different activity levels (home re-sales).645
Bloom's Level: Evaluate
Difficulty: Hard
Learning Objective: 3
Learning Objective: 4
Chapter 09 .
c) Preliminary calculations per home re-sale:
Sales commissions ($1.000/180): $950
General overhead ($656.950/180): $6.

sales volume
variance.Budgeting
9-80
b) Calculate the following variances: flexible budget variance.
Chapter 09 . Toyworld manufactures and sells a line of toys. reproduced below (She had to attend to an outof-town
emergency):
Chapter 09 . It can also be calculated as the
increase in unit sales
.
Your capable assistant provided you with the following data:
Required:
a) Your assistant has requested you to complete the "Flexible Budget" and
"Static/Master
Budget" columns of the analysis.500 and
the static budget operating loss of $2. As president of Toyworld. and total
static budget variance.134.550 and flexible budget
operating
income of $5.Budgeting
9-81
a)
b) Calculation of Variances
This is the difference between actual operating loss of $1.
This is the same as the difference between the flexible budget operating income
of $5.500.500. The toys are primarily
distributed through
department stores. you wanted to analyze Toyworld's
profitability.

000 and the unfavourable flexible budget variance of $7.050. This
facilitates
performance evaluation and allows the entity to compare budgeted expenses
with actual
relating to each program and allows managers to make decisions with respect to
similar
programs in the future.000).
This is the difference between the higher static budget operating loss of $2.
insurance.Budgeting
9-82
volume (1. Rather than simply budget total expected costs a program
basis details out
the revenues and expenses related to each program that is expected to run.500
and the lower
actual operating loss of $1.
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 5
.
An expenditure based budget simply lists the total expected costs of items such
as rent.550. Discuss.000 units) times the budgeted unit contribution margin of $8
($72.000/9. This is also the sum of the favourable sales
volume variance of
$8. Budgeting by program also facilitates the stewardship
objective by
providing information in a format permitting determination of whether funds
designated by
donors for specific purposes are being spent as intended.Chapter 09 .
Bloom's Level: Evaluate
Difficulty: Hard
Learning Objective: 3
Learning Objective: 4
135. salaries and depreciation without detailing how these various
expenses relate to
particular programs. In a not-for-profit entity a budget can be prepared either on an expenditure
basis or on a
program basis.

D. Engineering estimates based on attainable performance. Practical standards.Standard Costs and Overhead Analysis
10-2
.
C. The hours per unit that would be required for the present workforce to satisfy
expected
demand over the long run.
B. Budgeted standards. Ideal standards. which of the following is the
best basis
for a company to use in establishing the standard hours allowed for the output of
one unit of
product?
A.
C.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 1
Chapter 10 . Average historical performance for the last several years. Engineering estimates based on ideal performance.
B. To measure controllable production inefficiencies.
D.Chapter 10 . Normal standards. Which of the following refers to standards that allow for no machine
breakdowns or other
work interruptions and that require peak efficiency at all times?
A.Standard Costs and Overhead Analysis
10-1
Chapter 10
Standard Costs and Overhead Analysis
Multiple Choice Questions
1.
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 1
2.

Actual hours exceed standard hours.
B. If a company follows a practice of isolating variances at the earliest point in
time.
B.
B. Overtime labour was used during the period. what would
be the appropriate time to isolate and recognize a direct material price variance?
A. Actual labour hours worked exceeded standard labour hours for the
production level
achieved.
C. What does a favourable labour rate variance indicate?
A.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 1
4.
D. The standard rate exceeds the actual rate.
D.
C.
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 2
5. Practical standards can be used for product costing and cash budgeting. faster machine. When material is used in production. When production is completed.3. Practical standards can be attained by the average worker. Which of the following statements concerning practical standards is NOT
correct?
A. When material is purchased.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 3
Chapter 10 .
B. there is no reason to adjust standards if
an old machine is
replaced by a newer.
C.
D. What does an unfavourable labour efficiency variance indicate?
A. Under practical standards. The actual labour rate was higher than the standard labour rate. Standard hours exceed actual hours.
C. The labour rate variance must also be unfavourable.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 3
. When practical standards are used. large variances are less likely than under ideal
standards. The actual rate exceeds the standard rate. When material is issued.Standard Costs and Overhead Analysis
10-3
6.
D.

The number of units produced was less than the number of units budgeted for
the period.
B. The average wage rate paid to direct labour employees was less than the
standard rate.7. unskilled workers. If the actual labour hours worked exceed the standard labour hours allowed.
C. Which of the following is the most probable reason a company would
experience an
unfavourable labour rate variance and a favourable labour efficiency variance?
A.Standard Costs and Overhead Analysis
10-4
9. The standard hours allowed for the units produced were greater than actual
direct labour
hours used.
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 3
Learning Objective: 9
8. Unfavourable labour rate variance.
C. Because of the production schedule. Favourable labour efficiency variance. The mix of workers assigned to the particular job was heavily weighted
towards the use of
higher paid.
C. (Appendix 10B) What does a credit balance in a direct labour efficiency
variance account
indicate?
A.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 3
Chapter 10 . relatively low-paid.
D. workers from other production areas
were assigned to
assist this particular process. Favourable labour rate variance. Unfavourable labour efficiency variance. The mix of workers assigned to the particular job was heavily weighted
towards the use of
new.
D. The actual total direct labour costs incurred were less than standard direct
labour costs
allowed for the units produced.
B.
what type of
variance will occur?
A. experienced individuals.
.
B.

Which department is usually held responsible for an unfavourable materials
quantity
variance?
A. That the actual usage of materials was less than the standard allowed.30
per kilogram. Marketing.
B. Actual production in November was 3.
C.
C. Tower Company planned to produce 3. Purchase of low quality materials. There
was a
favourable materials price variance of $380 and an unfavourable materials
quantity variance of
$120. That the actual cost per kilogram for materials was less than the standard cost
per kilogram.000 units of its single product.
D.
Titactium. during
November.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 3
10. Purchasing.
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 2
11.
B. Problems with labour efficiency.
B. what could one assume?
A. That more materials were purchased than were used. Based on these variances. Changes in the product mix. Defective materials caused more labour to be used in order to produce a
standard unit.
C. The standards for one unit of Titactium specify six kilograms of
materials at $0.
D.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 2
Chapter 10 . Production.
D. Problems with processing machines.
Bloom's Level: Understand
. Engineering.100 units of Titactium. That more materials were used than were purchased. A favourable materials price variance coupled with an unfavourable materials
quantity
variance would MOST likely result from which of the following?
A.Standard Costs and Overhead Analysis
10-5
12.D.

and credits to Labour Efficiency Variance.
C. and Wages Payable.
B. and credits to Labour
Efficiency
.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 2
Learning Objective: 3
14.
B. Manufacturing overhead. Debits to Work in Process and Labour Rate Variance. A debit to Work in Process. (Appendix 10B) Drake Company purchased materials on account.Difficulty: Medium
Learning Objective: 2
13.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 2
Learning Objective: 9
Chapter 10 . A debit to Work in Process. Labour
Rate
Variance. (Appendix 10B) Which of the following entries would correctly record the
charging of
direct labour costs to Work in Process given an unfavourable labour efficiency
variance and a
favourable labour rate variance?
A. A debit to Work in Process and an equal credit to Wages Payable. A credit to Materials Price Variance.
B. A credit to Raw Materials Inventory. and credits to
Labour Rate
Variance and Wages Payable.Standard Costs and Overhead Analysis
10-6
15.
D. Debits to Work in Process and Labour Efficiency Variance.
C.
D.
C.60 per
kilogram would include which of the following?
A. The production manager.50 per kilogram from a
supplier at $1. A debit to Materials Price Variance. The engineering department. A labour efficiency variance resulting from the use of poor quality materials
should be
charged to which/whom?
A.
D. The purchasing agent. The entry
to record the
purchase of materials having a standard cost of $1.

90 percent of which
were for
direct labour.2.600*12 .
. $4. $17. $4. $130 unfavourable.
C.000 direct labour hours.000
kilograms of direct materials and 32.450 unfavourable. $16. using
151.31.
(200*7.
B.
D.750. The total factory wages for March were $400.900)*12. The following standards for variable manufacturing overhead have been
established for a
company that makes only one product:
The following data pertain to operations for the last month:
What was the variable overhead spending variance for the month?
A.8 .397 unfavourable. $0.55
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 4
Chapter 10 .000 units of product during March.company that makes only one product:
The following data pertain to operations for the last month:
What was the variable overhead efficiency variance for the month?
A.
2.
B.
D.817 unfavourable. Bryan purchased 165.000 kilograms of direct materials at a total
cost of
$585.
C.000. $130 favourable.Standard Costs and Overhead Analysis
10-19
38.338 unfavourable.330
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 4
Bryan Company employs a standard cost system in which direct materials
inventory is carried
at standard cost. $580 unfavourable. Bryan has established the following standards for the prime
costs of one unit of
product:
During March. Bryan manufactured 25.

$900 credit. the following
events
occurred:
Purchased 15.600 debit. $240 credit.500 credit. The following standards have been
established for one unit
of Mip:
There were no inventories of any kind on August 1.
Used 1.
Price/m = 9/6 = $1.060. 15. $1.000 board metres to produce 2.12. the
general ledger would include what entry to the Labour Rate Variance account?
A. (Appendix 10B) To record the use of direct materials in production.
C.
(2. $3.
B.
B. $6.100*6 .000. the general ledger
would
include what entry to the Materials Price Variance account?
A. $3. and
employs a standard costing system.
. During August.50
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 2
Learning Objective: 9
61. called a
Mip.000 debit. the
general ledger
would include what entry to the Materials Quantity Variance account?
A.500 debit.50.(Appendix 10B) The Dexon Company makes and sells a single product.
59.
D.000)*1.24.Standard Costs and Overhead Analysis
10-30
60.700 hours of direct labour time at a total cost of $20.500 debit
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 2
Learning Objective: 9
Chapter 10 .000 credit. $1.100 Mips.
Used 12. (Appendix 10B) To record the incurrence of direct labour cost and its use in
production. $6.600 credit.50 .000*1. (Appendix 10B) To record the purchase of direct materials.000 = 1.000 board metres at the total cost of $24.
D.
C. $900 debit.

C. then there is no volume variance.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 5
Learning Objective: 6
95. An increase in the fixed portion of the predetermined overhead rate.D.
C. The amount of the fixed overhead budget variance.
D.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 5
Chapter 10 . If the denominator level of activity is greater than the standard hours allowed
for the output
of the period.
D. More profitable operations.Standard Costs and Overhead Analysis
10-45
93. An increase in the variable portion of the predetermined overhead rate. The amount of the variable overhead efficiency variance.
D. The volume variance is the most appropriate measure of the utilization of plant
facilities.
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 4
Learning Objective: 7
94.
B. The amount of the volume variance. A decrease in denominator level of activity will lead to which of the following?
A. The contribution margin lost by failing to meet the target denominator level of
activity.
C. The economic impact of the inability to reach a target denominator level of
activity would
best be measured by which of the following?
A.
B. then the volume variance is unfavourable. A decrease in the fixed portion of the predetermined overhead rate. A decrease in the variable portion of the predetermined overhead rate.
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 5
92. If the denominator level of activity and the standard hours allowed for the
output of the
period are the same. The fixed overhead volume variance is due to which of the following?
. If the denominator level of activity is greater than the standard hours allowed
for the output
of the period. then the volume variance is favourable. Which of the following statements is NOT correct?
A.
B.

Overhead cost is applied to units based on direct labour hours. Variable overhead efficiency variance.
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 5
Learning Objective: 6
Chapter 10 .000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 4
. Which of the following variances is caused by a difference between the
denominator
activity in the predetermined overhead rate and the standard hours allowed for
the actual
production of the period?
A.000.000 direct
labour hours for
the month. Fixed overhead volume variance. total
overhead cost
was budgeted at $80.000.
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 5
Learning Objective: 6
97.000.
D.
C. Variable overhead spending variance.
C.500*2* 80.
C.500. The following data are available for April's activity:
What was the amount of total overhead cost applied to production for the month
of April?
A.
D.Standard Costs and Overhead Analysis
10-46
96. A difference between the denominator activity and the standard hours allowed
for the actual
output of the period.
D. $76. Inefficient or efficient use of whatever the denominator activity is.
B. Fixed overhead budget variance. A shift in the amount of hours required to produce the actual output. $79. For April.
B.000/20. Inefficient or efficient use of overhead resources.
B. The standard cost card indicates that each unit of finished product
requires 2 direct
labour hours.
9. $78.A. $80.000 based on a denominator activity level of 20.

Chapter 10 .800 * 5 * 300. The Adlake Company makes and sells a single product and uses a standard
cost system.300.000 machine hours.000 in manufacturing overhead
cost at a
denominator activity of 20.000 . the company budgeted $300.75. $279. $102. $291. The following cost and activity were recorded during
October:
What was the amount of overhead cost that the company applied to work in
process for
October?
A. Web Company uses a standard cost system that applies manufacturing
overhead to units of
product on the basis of machine hours.600.Standard Costs and Overhead Analysis
10-49
102.
C.400. During February.
During October.400/(80. $294. $98.
B.000.
B.400 unfavourable. $96.
6.330. only
75.000) *80.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 5
. At standard. each unit of finished
product
requires 5 machine hours.
If the fixed
overhead volume variance for February was $6.000
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 5
Learning Objective: 6
103. $285.
However.
D.000.000 standard machine hours were allowed for the month's actual production. $100.000 machine hours in computing its predetermined overhead rate.
D.000.
C.
3.000/20.000. the company used a
denominator
activity of 80. what was the
total budgeted
fixed overhead cost for the month?
A.

For the month of January. What were the
standard direct
labour hours allowed for the month's output in January?
A.200. The information below is
taken from the
company's flexible budget for manufacturing overhead:
During the year. They fell short of the denominator hours by 1.200/1. They exceeded the denominator hours by 1.85
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 5
Learning Objective: 6
Chapter 10 .200.200 unfavourable. They fell short of the denominator hours by 1. Jaune Company uses a standard cost system that applies manufacturing
overhead to units
of product on the basis of direct labour hours (DLHs).85 per direct labour hour.000 . $500 favourable. $1.
D. the fixed
manufacturing overhead volume variance was $2.
D. Patridge Company uses a standard cost system in which it applies
manufacturing overhead
to units of product on the basis of direct labour hours.
2. The following data pertain
to last month's
operations:
What was the fixed overhead budget variance?
A.
C.Standard Costs and Overhead Analysis
10-52
108.5. $2. They exceeded the denominator hours by 1.000. the company operated at exactly 80% of capacity.500
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 6
107.
C.
5. Henley Company uses a standard cost system that applies manufacturing
overhead to units
of product on the basis of direct labour hours. but it applied
manufacturing
.000.700 unfavourable.106. The company
uses a fixed
manufacturing overhead rate of $1.
B.
B.220 favourable. $500 unfavourable.

$6.000 favourable. What was the company's fixed
overhead volume
variance for the year?
A.000 * 108.000*(1 + 4)
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 4
Learning Objective: 5
Learning Objective: 6
The Murray Company makes and sells a single product. Union Company uses a standard cost accounting system.
.000 favourable.000/27.
C.000 unfavourable. The following
overhead costs
and production data are available for August:
What was the total amount of overhead applied to work in process in August?
A.
24. $195.
C. $197. $6.
B.Standard Costs and Overhead Analysis
10-53
109.000.000 unfavourable. $12.overhead to products based on the 90% level.500.
D. $199.000 .500.
B. $197. $12.
D.
39. The company recorded
the following
activity and cost data for May:
The fixed portion of the predetermined overhead rate is $0.108.000
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 5
Learning Objective: 6
Chapter 10 .000.95 per direct labour
hour.

C. When the fixed overhead applied to units of product on the basis of standard
hours allowed
differs from the budgeted fixed overhead. When the actual direct labour hours differ from standard hours allowed.
D. which is used for applying costs to production.
. When there is a budget variance in fixed overhead costs.
B. The variable portion of this rate.
D. A volume variance will exist for Dori in a month under which of the following
conditions?
A.
C.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 5
Learning Objective: 6
152.
B.
Chapter 10 . The fixed overhead volume variance. Dori's choice of a production volume as a denominator for calculating its
predetermined
overhead rate will have NO effect on which of the following?
A.
C. The actual direct labour hours multiplied by the standard fixed overhead rate
per direct
labour hour. The fixed overhead budget variance. The standard units of output for the actual direct labour hours worked
multiplied by the
standard fixed overhead rate per unit of output.
B.
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 5
Learning Objective: 6
153. When the production volume differs from sales volume.Standard Costs and Overhead Analysis
10-74
151.Learning Objective: 5
Learning Objective: 6
Dori Castings is a job order shop that uses a standard cost system to account for
its production
costs. Manufacturing overhead costs are applied to production on the basis of
direct labour
hours. What amount of fixed overhead would Dori apply to finished production?
A. The fixed portion of this rate. The standard hours allowed for the actual units of finished output multiplied by
the standard
fixed overhead rate per direct labour hour. which is used for applying costs to production.

10-86
187.
and prepare journal entries to record activity for the month.
.
Required:
a) (Appendix 10B) For direct materials. (Appendix 10B) Albert Manufacturing Company manufactures a single
product. 6. The
standard cost of one unit of this product is:
During the month of October. Capacity analysis is most affected by the presence of variable costs.000 units were produced.
b) (Appendix 10B) For direct labour.
FALSE
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 1
Learning Objective: 7
189. compute the price and quantity variances
for the month.
TRUE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 10
Chapter 10 . (Appendix 10A) Direct labour efficiency variance can be analyzed further
into mix and
yield variances if more than one class of direct labour that are good substitutes is
used in
operations. Waste or excessive usage of overhead items will show up as part of the
variable overhead
efficiency variance.
FALSE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 4
188. compute the rate and efficiency variances
for the month.Standard Costs and Overhead Analysis
10-87
Essay Questions
190. NOT
fixed costs. Selected cost data
relating to the
month's production follow:
There was no beginning inventory of raw materials. The variable overhead rate is
based on
direct labour-hours.

compute the price and quantity variances
for the period
and prepare journal entries to record all activity relating to direct materials for the
period. Inc.
c) For variable overhead.
Chapter 10 . (Appendix 10B) Vernon Mills. is a large producer of men's and women's
clothing.Chapter 10 .120 metres of materials were purchased. compute the rate and efficiency variances
and prepare a
journal entry to record the incurrence of direct labour cost for the period.
Required:
a) (Appendix 10B) For direct materials.Standard Costs and Overhead Analysis
10-91
a) Materials Price Variance:
(b) Labour Rate Variance:
.800 units of this product.Standard Costs and Overhead Analysis
10-90
191. all of which were used in production. The
company uses standard costs for all of its products. The standard costs and
actual costs per unit
of product for a recent period are given below for one of the company's product
lines:
During this period. compute the spending and efficiency variances. A
comparison of
standard and actual costs for the period on a total cost basis is given below:
There was no inventory of materials on hand at the beginning of the period. the company produced 4.
b) (Appendix 10B) For direct labour.
21.
During the period.

Chapter 10 . the company purchased 7.20(6. All of this material was used in the production of 1. Dodge Company produces a single product.250.Standard Costs and Overhead Analysis
10-100
197.408)
= $1.6 x 1.958.20)
= $3.
Direct labour
cost totalled $55.SQ)
= $10. The company has set the
following standards
for materials and labour:
During the past month.408
Materials quantity variance = SP(AQ . the standard
quantity allowed
for materials in total for the month's production.6.000 kilograms of direct
materials at a cost of
$26.600 . The following variances have been
computed:
Required:
a) For direct materials. compute the standard price per kilogram.
b) For direct labour.(7.100 x $10.905 favourable
SQ = Standard quantity per unit x Actual output
= 3.780
= 6.40 unfavourable
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 2
Chapter 10 .= $68. compute the actual direct labour cost per hour for the month
and the labour
rate variance. and the standard quantity per unit
of product.125 for the month.515 .Standard Costs and Overhead Analysis
.300 units of product.

For example.Learning Objective: 4
Chapter 10 . A standard is a unit concept.
Theoretical standards. they often mean the total budgeted labour costs.
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 1
.
standard quantity of input for a unit of output. Theoretically either can be used as the framework
for the
budgeting process.
Required:
a) What is the major distinction. Standards can be either theoretical ("impossible dream") or practical
(attainable all the
time or only part of the time). provides the better benchmark for
evaluating
subsequent performance in a budgeting system? Explain. Such standards generally will elicit positive motivation
from workers. on the other hand. tend to discourage even the most
diligent workers and
as such may have no motivational value. standard cost per unit of input or
standard cost per
unit of output.
for example.Standard Costs and Overhead Analysis
10-106
201. A budgeted amount is a total concept. if any. when
businesses talk of
budgeted labour costs. between a standard amount and a
budgeted amount?
b) Which standard. theoretical or practical.
b) Practical standards should normally provide better benchmarks for evaluating
subsequent
performance because they are attainable through reasonable (although highly
efficient) efforts
by the average worker. not
budgeted labour
cost per unit of product.
a) One major distinction between a standard amount and a budgeted amount is
the unit of
measurement. It is often quoted on per unit basis.

The resulting spending and efficiency
variances
may therefore have no relationship to either the cost or quantity of indirect labour
if their
amounts are insignificant relative to other components of variable overhead
costs. in a
manufacturing situation where there are significant variations in wage rates within
or across
departments. As such the standard variable
overhead rate
measures things other than indirect labour.
Bloom's Level: Evaluate
Difficulty: Hard
Learning Objective: 1
Learning Objective: 3
. direct labour cost can better capture these variations as they are
reflected in
variable overhead costs.
Required:
a) Will direct labour cost ever be a better cost driver of variable overhead costs
than direct
labour hour? Explain
b) How is the standard variable overhead rate different from the standard labour
rate in variance
analysis? Explain. by definition.Chapter 10 . Some variable overhead costs such as employee
benefits and
entitlements are usually dependent not only on number of hours but also wage
rates. On the other
hand.Standard Costs and Overhead Analysis
10-107
202.
b) Variable overhead costs include not only indirect labour costs but also other
costs such as
indirect material and variable portions of utilities.
a) Direct labour cost can be a better cost driver than direct labour hour. the standard direct labour rate. Direct labour hour is often assumed as the sole cost driver in analyzing the
total variable
overhead cost variance into spending and efficiency variances. For
example. relates only to direct labour
and any
resulting variances have unique interpretations regarding direct labour quantity
and rate.

$4.000. (Appendix 10B) The following is the standard cost card for X Company's
only product:
The company manufactured and sold 18.Standard Costs and Overhead Analysis
10-108
203.75 per hour. including the results of the variance analysis.
b) Compute the direct labour rate and efficiency variances for the year.SQ) = Direct materials quantity variance
$4. A
total of 70.
e) (Appendix 10B) Prepare a journal entry to record the variable overhead costs
incurred and
applied.200 metres .000 units of product during the year.000.
Overhead cost is applied to products on the basis of direct labour hours.Standard Costs and Overhead Analysis
10-109
a) Direct materials price and quantity variances:
AQ (AP .
Chapter 10 . Actual
variable overhead costs were $90. All
of this material
was used to manufacture the 18. The
denominator
activity level (direct labour hours) was 22.250 direct labour hours during the year at a cost of
$9.20 .200
metres of material was purchased during the year at cost of $4.000 metres*) = $7.
The company worked 29.
f) (Appendix 10B) Prepare a journal entry to record the fixed overhead costs
incurred and
applied.20 per metre.040 unfavourable
SP (AQ .SP) = Direct materials price variance
70.
Required:
a) Compute the direct materials price and quantity variances for the year.500 hours. while actual fixed overhead costs were
$156.00 (70.
d) Compute the fixed overhead budget and volume variances for the year.
c) Compute the variable overhead spending and efficiency variances for the year.200 metres ($4. Budgeted fixed overhead
costs as shown
on the flexible budget were $157. including the results of the variance analysis. The company records showed no
beginning or
ending inventories for the year.500.72.200 favourable
.000 units.Learning Objective: 4
Chapter 10 .00) = $14.

b) Show how the $136. with variable and fixed elements identified:
b) Applied overhead for the period:
c) Variable overhead variances:
Proof of variances:
.
showing separately the variable and fixed components of the rate. the cause of which
management
would like to know.100 underapplied overhead figure in terms of the variable
overhead spending
and efficiency variances and the fixed overhead budget and volume variances.
The difference ($9.
e) (Appendix 10B) Prepare a journal entry to record the fixed overhead costs
incurred and
applied.Standard Costs and Overhead Analysis
10-120
a) The predetermined overhead rate. including the results of the variance analysis.
Required:
a) Compute the predetermined overhead rate that would have been used during
the year.
c) Analyze the $9.Chapter 10 .
According to the company's flexible budget.100) represents underapplied overhead. the following overhead costs should
be incurred at
an activity level of 18.000 machine hours (the denominator activity level chosen
for the current
year):
During the current year.
d) (Appendix 10B) Prepare a journal entry to record the variable overhead costs
incurred and
applied. (Appendix 10B) Nova Corporation produces a single product and uses a
standard cost
system to help control costs. Overhead is applied to production on the basis of
machine hours. the company's Manufacturing Overhead account showed
total debits for
actual overhead costs of $145.100 and total credits for overhead actually applied
of $136. including the results of the variance analysis.Standard Costs and Overhead Analysis
10-119
207.000 of "Applied Costs" was computed.000.
Chapter 10 . the following operating results were recorded:
At the end of the year.

.
each unit of
product requires one machine hour to complete.
Required:
a) The denominator activity level is 120.Chapter 10 . At standard. What are the predetermined
variable and
fixed manufacturing overhead rates?
b) Actual data for the year were as follows:
Compute the variable overhead spending and efficiency variances and the fixed
overhead
budget and volume variances for the year.Standard Costs and Overhead Analysis
10-122
208.Standard Costs and Overhead Analysis
10-121
d) Journal entries for variable overhead:
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 4
Learning Objective: 5
Learning Objective: 6
Learning Objective: 9
Chapter 10 .000 units. Warner Manufacturing has established the following master flexible budget
for the current
year:
Manufacturing overhead is applied on the basis of machine hours.

Standard Costs and Overhead Analysis
10-126
210.$1.08
.268
= $2.880
= -$2.
Required:
a) Several numbers and labels have been omitted from the analysis of fixed
overhead below. favourable variances are
negative and
unfavourable variances are positive.268 favourable
Fixed overhead applied = 302.Standard Costs and Overhead Analysis
10-127
a)
Computations-in this order:
(Note: When used in the below algebraic formulas.880 unfavourable
= -$388 .$1.
How many units
were actually produced in the situation above?
c) Again suppose that 6 minutes of machine time is standard per unit of
production.Chapter 10 . How many
units of production were assumed when the predetermined application rate for
fixed overhead
was established?
Chapter 10 . Tracton Corporation uses a standard costing system in which manufacturing
overhead
costs are applied to products on the basis of machine time.
b) Suppose that 6 minutes of machine time is standard per unit of production.100 MH x $1.Budget variance
= $388 favourable .)
Volume variance = Total variance .
Supply the missing numbers and labels.

800 x 60%. if any. SM:
Standard
Mix)
Supporting calculations:
AQ at SM: X: 4. The net yield variance was significantly
unfavourable. 460 x 4
(i) Quantity variances
Mix variants
Chapter 10 .5%: 37. AM: Actual mix. SQ: Standard Quantity.b) Suppose you are made aware that the assistant production manager
recommended the
departure from the standard mix. The
assistant production manager had relatively more influence on this variance and
consequently
she should not be commended.800 x 40%
SQ at SM: X: 460 x 6. Y: 4. Unfortunately.Standard Costs and Overhead Analysis
10-130
Variance calculations
Framework (AQ: Actual Quantity. Should the assistant manager be commended?
Explain
Chapter 10 .5%
was a favourable net mix variance of $480.Standard Costs and Overhead Analysis
10-131
Yield variants
The net effect of departing from the standard mix of 60%: 40% to actual mix of
62.
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 2
Learning Objective: 8
. this was strictly the
result of shifting
the mix in favour of the cheaper raw material X over which the assistant
production manager
had very little influence.

C. which of the following is a consequence of an
increase in a
division's traceable fixed expenses?
A.
C. The division's contribution margin ratio will decrease.Chapter 11 . Invested capital.
B. Product advertising outlays.
D.
D. Direct materials.
. Sales.Reporting for Control
11-2
3.Reporting for Control
11-1
Chapter 11
Reporting for Control
Multiple Choice Questions
1. Salary of a corporation president. Operating income.
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 4
2. Total assets. What would be a good example of a common cost that normally could NOT be
assigned to
products on a segmented income statement except on an arbitrary basis?
A. The division's segment margin ratio will remain the same.
Bloom's Level: Remember
Difficulty: Easy
Learning Objective: 1
Chapter 11 .
B. The product manager's salary. Which of the following is the numerator in the calculation of the turnover
component of
ROI?
A. All other things being equal.
B.

C.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 1
4.000. $45. $0.000*. $50. The contribution margin ratio in Division M was 40%. The overall company operating income will remain the same.000 + 50.000.Reporting for Control
11-3
5.000.
D.
C.000 + 200.000. and had a contribution margin ratio of 30% in
Division B. L's SM = 70.000.000. What were Lyons Company's common
fixed
expenses?
A.000
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 1
Chapter 11 .000
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 1
. More Company has two divisions: L and M. Lyons Company reported
a contribution
margin of $50.
Total SM = 20.
50.000. the contribution
margin in Division
L was $60. $70.30 . $40. $85.000. During July.
C.60.000.
D. What was the
segment margin for
Division L?
A. The common fixed
expenses were
$50.
B.
when sales in Division B were $200.25.
B. and the company operating income was $20. The division's segment margin will decrease. Operating income for the company was
$25.
D.000.40.000 = 70.000.000 for Division A.000. $60.000. Lyons Company consists of two divisions: A and B.000 . and its
sales were
$250.000.000. $10.000 and
traceable fixed expenses were $40. Division M's segment margin was $60.000 .

15)
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 1
Chapter 11 . During April.000 for Plant A. Johnson
Company reported for
the year just ended a contribution margin of $50. $70. what were the total fixed expenses?
A.333.000) + (150.000.000. $90.
D. a variable
expense ratio of 60% of sales. What were Johnson
Company's
common fixed costs for last year?
A.000*(1 -.000.
using equation S -. Sales = 15. Division
D's sales were
closest to which of the following?
A. Johnson Company operates two plants: Plant A and Plant B. $60. $40. $62.000.6 -.
C.000 + (90.
50. $33.Reporting for Control
11-4
7. $93. Divisions A and B of Denner Company reported the following results for
October:
If common fixed expenses were $31.
B.20.
31. $31.000.50.500.000 + 200.000*.000.000
and traceable fixed costs for the two plants totalled $50.000 = .000.000.000.000 .
D. $52. Plant B had
sales of $200.70) .
D.2. and traceable fixed expenses of $15. Division D of Carney Company had a segment margin ratio of
15%.23.
B.000.000*(1 -.30 . $100.000. $50.15S. Net operating income for the company
was $20.
C.000/(1 -.60) .
B.000.000
Bloom's Level: Analyze
.
C.6.6S .000)
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 1
8.000
and a contribution margin ratio of 30%.15. $22.000.

B. III only. I only. Which of the following is NOT an operating asset?
A.
II. Net book value is consistent with the computation of operating income.
C. Residual income in the denominator. I and II only. Common shares. Net book value allows ROI to decrease over time as assets get older.
C. Operating income in the denominator. I and III only. which
includes
amortization as an operating expense. Sales in the denominator. Cash.Reporting for Control
11-8
15.
D.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 5
16. which of the following is used?
A.
A.
B.
Bloom's Level: Remember
Difficulty: Easy
Learning Objective: 5
17. Which of the following statements provide(s) an argument in favour of
including only a
plant's net book value rather than gross book value as part of operating assets in
the ROI
computation?
I.
III. Average operating assets in the denominator.
B.
D.Chapter 11 .
C. Net book value is consistent with how plant and equipment items are reported
on a balance
sheet. Plant equipment. Inventory. In computing the margin in a ROI analysis.
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 4
.
D.

Dividing the margin by the turnover.
Bloom's Level: Remember
Difficulty: Easy
Learning Objective: 4
Chapter 11 .
D. How is a company's return on investment calculated?
A. It will decrease if operating assets decrease.
D.
C.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 4
20.
C.
D. It will decrease if turnover increases. which of the
following
statements about a company's return on investment is correct?
A. It will decrease if turnover decreases. Dividing the turnover by the average operating assets. It will increase if operating assets increase. All other things equal.Reporting for Control
11-9
18. A decrease in sales.
B.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 4
19.
B. Multiplying the turnover by the average operating assets.
B. An increase in operating expenses. Assuming that sales and operating income remain the same.Chapter 11 . An increase in average operating assets. A decrease in operating expenses.Reporting for Control
11-10
.
C. Multiplying the margin by the turnover. which of the following events would generally cause an
increase in a
company's return on investment (ROI)?
A.

Delmar Corporation is considering the use of residual income as a measure
of the
performance of its divisions. Contribution margin minus traceable and common fixed expenses.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
Chapter 11 . Residual income does not measure how effectively the division manager
controls costs. Option A
B. Opportunities may be undertaken that will decrease the overall return on
investment. The minimum required rate of return may eliminate desirable opportunities
from
consideration.
C. Suppose a manager's performance is to be evaluated by residual income.
B. All other things equal. What major disadvantage of this method should the
company
consider before deciding to institute it?
A.
D. Option D
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 4
22.Reporting for Control
11-11
23. Sales minus variable expenses and traceable fixed expenses. Option B
C.
. This method does not make allowance for difference in the size of compared
divisions.
B.
D. Which of the following is a correct definition of operating income?
A.21. a company's return on investment is affected by a
change in which of
the following?
A.
C. Sales minus variable expenses. Option C
D.
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 5
24. Income before interest and taxes (EBIT).
Which of the
following will NOT result in an increase in the residual income figure for this
manager.

Research and development.
D. Which of
the following would improve the manager's performance?
A. The cost of which one of the following business functions making up the
value chain is
included in product costs for financial reporting purposes under generally
accepted accounting
principles?
A.
B. Manufacturing.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 5
25. The costs of which of the following business functions making up the value
chain are NOT
part of the downstream costs?
A. An increase in sales. Increase in minimum required return. Customer service.
D. A decrease in expenses. Decrease in operating income.assuming other factors remain constant?
A. Customer Service.
C.
B. The performance of the manager of Division A is evaluated by residual
income. Distribution. Marketing.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 6
.
C.
D.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 6
27. Decrease in average operating assets. Increase in average operating assets.
B.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 5
Chapter 11 .
C.Reporting for Control
11-12
26.
D.
C. A decrease in operating assets. An increase in the minimum required rate of return.
B. Manufacturing. Product design.

B.
Bloom's Level: Remember
Difficulty: Easy
Learning Objective: 2
34. A residual income centre. Variable cost of producing a unit of product.Reporting for Control
11-14
32.
C. An investment centre. less any costs saved by
transferring
internally.
C. A profit centre. Which of the following best describes a segment of a business responsible
for both revenues
and expenses?
A.
B. what is the lowest acceptable
transfer price
as far as the selling division is concerned?
A.
D.
C. The market price charged to outside customers. The full absorption cost of producing a unit of product. The amount that the purchasing division would have to pay an outside seller
to acquire a
similar product for its use.
B. A cost centre. Activity-based costing. Effective decentralization is essential for which of the following management
accounting
practices in organizations?
A.
D.
D.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 3
33. Segment reporting. When the selling division in an internal transfer has unsatisfied demand from
outside
customers for the product that is being transferred. Break-even analysis.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 1
.Chapter 11 . Product costing.

B.Reporting for Control
11-15
35. External failure costs.Chapter 11 . An increase in appraisal costs will usually result in an increase in which of the
following?
A.
Which statement(s) is/are correct?
A.
III. Consider the following three statements:
I.
C. I and III only. An investment centre has control over invested funds. Which of the following statements about quality costs is correct?
A.
II.
C. Opportunity costs.
D.
B. A profit centre has control over both cost and revenue. They cut across departmental lines and often are not accumulated and
reported to
management. I and II only. A cost centre has no control over sales.
D.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 2
36.
C. II only. They should be focused on appraisal activities. Internal failure costs.
B.
D. I only.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 7
. but not over costs and
revenue. They are minimized by having a team of well-trained quality control inspectors.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 7
37. Prevention costs. They relate only to the manufacturing process.

Quality data gathering. Warranty repairs and replacements.
D. Re-entering data because of keying errors. Net cost of spoilage.
D.
B.
C. Net cost of scrap. Systems development.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 7
39. Systems development.
D. Lost sales arising from a reputation for poor quality. analysis.
B.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 7
41. Rework labour and overhead. Which of the following would be classified as an appraisal cost on a quality
cost report?
A.
C. Which of the following would be classified as a prevention cost on a quality
cost report?
A.
B. Which of the following would be classified as a prevention cost on a quality
cost report?
A.
C.
C. Supervision of testing and inspection activities. Quality engineering.
D. Which of the following would be classified as a prevention cost on a quality
cost report?
A.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 7
40.Chapter 11 . Final product testing and inspection. Technical support provided to suppliers. Quality training.Reporting for Control
11-16
38. and reporting.
B.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 7
. Rework labour and overhead. Cost of field servicing and handling complaints.

C. Downtime caused by quality problems.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 7
43.
D.Chapter 11 . Cost of field servicing and handling complaints.
B. Downtime caused by quality problems. Supplies used in testing and inspection. Quality circles.
C. Which of the following would be classified as an appraisal cost on a quality
cost report?
A.Reporting for Control
11-18
.
D. Quality engineering.
B.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 7
44. Test and inspection of in-process goods. Amortization of test equipment.
C.
B. Final product testing and inspection. Returns and allowances arising from quality problems.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 7
Chapter 11 . Which of the following would be classified as an internal failure cost on a
quality cost
report?
A.Reporting for Control
11-17
42.
D. Which of the following would be classified as an appraisal cost on a quality
cost report?
A. Net cost of scrap. Supplies used in testing and inspection.

D.
D. Which of the following would be classified as an external failure cost on a
quality cost
report?
A.
B.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 7
47. Re-entering data because of keying errors.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 7
Chapter 11 . Which of the following would be classified as an external failure cost on a
quality cost
report?
A.
C. Amortization of test equipment. Systems development.
D. Rework labour and overhead.45.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 7
46. Systems development. Quality engineering.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 7
. Which of the following would be classified as an internal failure cost on a
quality cost
report?
A. Repairs and replacements beyond the warranty period.
C.
B.
B. Quality training.Reporting for Control
11-19
48.
D. Systems development. Quality engineering.
C. Supplies used in testing and inspection. Which of the following would be classified as an internal failure cost on a
quality cost
report?
A. Quality improvement projects.
C. Technical support provided to suppliers. Final product testing and inspection. Product recalls. Quality training.
B.

C.5% and 5%.500. If the company's turnover was 3. If the division's average operating assets last year were $450. what was the company's operating
income for the
year?
A.
P = .000/8. $37.12)/3
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 4
Chapter 11 . Q = .000) = 4%
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 4
. Reed Company reported total sales of $150. $18.Reporting for Control
11-34
85.000*.
B.
D. $2. Sales and average operating assets for Company P and Company Q are
given below:
What is the margin that each company (Company P and Company Q.
B.000. 2.20/(50.000.500. 50% and 100%.000*. 12% and 16%.15 .
B. Division B had an ROI last year of 15%. The division's minimum required rate
of return is
10%. $22.000*.
C. $67.
(150.
respectively) will have to
earn in order to generate a return on investment of 20%?
A.000 last year and a return on
investment (ROI)
of 12%.000.
C.450.
D.000) = 8%.
D.10
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 4
Learning Objective: 5
84. what
was the division's
residual income for last year?
A. $6.83. 8% and 4%.20/(20.
450.000.500.000/10.000. It is impossible to determine from the data given. $45.

12
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 5
Chapter 11 . $20.000/375.Reporting for Control
11-36
89.15/(750.000. $2.000*. What was the residual income for the Northern
Division last
year?
A.000. 15. 7.000. Largo Company recorded sales of $750.150.Chapter 11 . What margin did Largo Company need to earn to achieve an ROI of
15%?
A.000 .
C. The Northern Division of the Smith Company had average total operating
assets of
$150. Its minimum required rate of return was 12%.000)
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 4
90. $18.000 and average
operating assets
of $375. 9. For the past year.000. The division
reported
operating income of $20.000.50%
C.00%
B.99%
D.
20.000.000 last year.00%
Margin = . 2.
B.
D.Reporting for Control
11-37
. $5.

Data concerning
this part appear below:
Division Y of the same company would like to use the part manufactured by
Division X in one
of its products.000)/5.
50 + ((75 . Division X makes a part that it sells to customers outside of the company.
D.
Data concerning
this part appear below:
Division Y of the same company would like to use the part manufactured by
Division X in one
of its products. Division X has ample excess capacity to handle all of
Division Y's
needs without any increase in fixed costs and without cutting into outside sales.000 units
of the part each period.
C.
. $75. what is the lower limit on the transfer price?
A. Division Y
requires 5. What should be the lowest acceptable transfer price from the perspective
of Division
X?
A.
According to
the transfer pricing formula.
B.Reporting for Control
11-38
92. $66.50)*5. Division Y currently purchases a similar part made by an outside
company for
$70 per unit and would substitute the part made by Division X. Division Y
requires 5. Division X can already sell all of the units it can produce
on the outside
market.000 units
of the part each period. Division Y currently purchases a similar part made by an outside
company for
$49 per unit and would substitute the part made by Division X. Division X makes a part that it sells to customers outside of the company.91. $16.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 3
Chapter 11 . $50. $30.

Division B currently purchases a similar part made by an outside
company for
$38 per unit and would substitute the part made by Division A.
C. $38.
D. If
Division A sells to Division B rather than to outside customers.
Data concerning
this part appear below:
Division B of the same company would like to use the part manufactured by
Division A in one
of its products.1
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 3
.
D.
B. $30. the variable cost
per unit would
be $1 lower. Division B
requires 5. Division A has ample capacity to produce the units for
Division B
without any increase in fixed costs and without cutting into sales to outside
customers. $40. $46.
C.Reporting for Control
11-39
93. What should be the lowest acceptable transfer price from the
perspective of
Division A?
A. $50.
Transfer price = 30 + 0
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 3
Chapter 11 .
30 . Division A makes a part that it sells to customers outside of the company. $29.B. $49.000 units
of the part each period.

000
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 3
95.
. Division X of Charter Corporation makes and sells a single product that is
used by
manufacturers of forklift trucks. compared to what it is currently?
A. $17.000 units a year from
Division X to use
in its products.000 wheel sets it
needs annually
from Division P at $87 per wheel set. $225. What would be the change in annual
operating income for
the company as a whole. $24. and the variable production cost per unit is $65.000 units per year to outside
customers at
$24 per unit.000 each year on the outside market.000. $16.00. and the variable cost to make
each unit is $16.60. $21.000.000 wheel sets (of the kind made by Division P) yearly from an outside
supplier at a
price of $90 per wheel set.000 units.000. What should be the lowest
acceptable transfer
price from the perspective of Division X?
A.00. Presently.
Division Y of Charter Corporation would like to buy 10.
B. There would be no cost savings from transferring the units within
the company
rather than selling them on the outside market. Division Q of Turbo
Corporation currently
buys 30.
16 + {(24 .000 .Chapter 11 . Division P of Turbo Corporation has the capacity for making 75.000 wheel
sets per year and
regularly sells 60.16)*(10.8.Reporting for Control
11-40
94. Division Q would like to buy the 30.
C. $135.000)}/10. $600. it sells 12.40. The annual capacity is 20.
B.
D. The regular sales price is
$100 per wheel
set.
C.

36. 15%. 20%. What is Company A's return on investment (ROI)?
A.000 units.000. 240. The following data are available for the South Division of Redride Products.
B.Reporting for Control
11-42
98.000 + 1.000*. Note: Students will need to
have an
understanding of CVP analysis from chapter 7.000 units.
C.
(280. 1.000 units.16)/(20 .
Inc.12) = 65.
.300.Reporting for Control
11-43
The Axle Division of LaBate Company makes and sells only one product.000
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 4
99.000 units per year. $10.
C.Chapter 11 .000 units. what would be the residual income?
A. 52.000 units.500.
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 4
Chapter 11 .
D.000/180. Annual
data on the
Axle Division's single product follow:
100. 65.
D. If Axle sells 15. 4%. 36%.
B. and the
single product it makes:
How many units must South sell each year to have an ROI of 16%?
A.

Reporting for Control
11-58
133.
132.
what will be the effect on the operating income of the company as a whole?
A. would like to purchase 5. Suppose that Division A is operating at capacity and can sell all of its output
to outside
customers at its usual selling price. If Division A sells the parts to Division B at
$24 per unit
(Division B's outside price).
(24 . There will be no change in the status of the company as a whole.000 each period.25)*5. Lower by $10. what will be the effect on the operating income of
company as a
whole?
A. If
Division B continues to purchase parts from an outside supplier rather than from
Division A. Division B is now purchasing these parts from
an outside
supplier at a price of $24 each.000
units of the
part each period from Division A.
D.
Lowest TP = 18 + [(25 . Lower by $30. Higher by $5.
C.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 3
Division A produces a part with the following characteristics:
.000 each period.000 each period.18)*5.18)*5. Effect = (24 . Lower by $15.
D.000 each period. Higher by $15.000 each period.000 each period. Lower by $5.000 = 25.
B. Suppose that Division A has ample idle capacity to handle all of Division B's
needs
without any increase in fixed costs and without cutting into sales to outside
customers.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 3
Chapter 11 . another division of the same company.000]/5. Lower by $35.
C.Division A makes a part with the following characteristics:
Division B.000 each period.
B.

$17.
C. Suppose that Division A has ample idle capacity to handle all of Division B's
needs
without any increase in fixed costs and without cutting into its sales to outside
customers.Division B. $28. From the point of view
of Division A. $30. another division in the company.
Division B is presently purchasing the part from an outside source at $28 per
unit.
C.
18 . $18. $20.
D. would like to buy this part from
Division A.
B.1) + (30 . the Walsh
Division bought
.Reporting for Control
11-59
135.
B.
any sales to Division B should be priced no lower than which of the following?
A.
D. $27. $29. $29.
(18 . Suppose Division A is currently operating at capacity and can sell all of the
units it
produces on the outside market for its usual selling price. Last month. any sales to Division B should be priced no lower
than which of
the following?
A.18)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 3
Chapter 11 . From
the point of view of Division A.
134.1
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 3
The Vega Division of Ace Company makes wheels that can either be sold to
outside customers
or transferred to the Walsh Division of Ace Company. $1 in variable costs can be avoided. If Division A
sells to Division B.

30 . so transfers to
the Walsh Division cut into outside sales.
D. $42. What is the maximum price per wheel that Walsh should be willing to pay
Vega?
A.2
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 3
137. Suppose that the Vega Division has ample idle capacity so that transfers to
the Walsh
Division would not cut into its sales to outside customers. An outside supplier has offered to supply wheels to the Walsh
Division for $41
each. $28. $42.
B.
Chapter 11 . What should be the lowest acceptable
transfer price
from the perspective of the Vega Division?
A. $41.
C.00. Suppose that Vega can sell 9. The following data
are available
from last month's operations for the Vega Division:
If the Vega Division sells wheels to the Walsh Division.000 wheels each month to outside
consumers.Reporting for Control
11-60
136.
C. $45.
B. $28. $28.
.
outside suppliers price of 41
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 3
138. $45. $31.000 of its wheels from the Vega Division for $42 each. Vega can avoid $2 per
wheel in sales
commissions. What should be the
lowest acceptable
transfer price from the perspective of the Vega Division?
A.all 4.
B.
D. $30.75.

000 .
D. What is the lowest transfer price that would
not reduce the
operating income of the Post Division?
A.2) + [4.T.000)]*(45 .
D.35. $1.
139.90 + [15.
B. $1.
{(30 .000 *(1. $0.90.
D.75.00. Woodhead Company.35.
C. $1.
C.000 units.C.50 each.41. $42.000 .75 -.90 + 0
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 3
140. What is the lowest transfer price that would not reduce the
operating income of
the Post Division?
A. Suppose there is ample capacity so that transfers of the posts to the Lamp
Division do not
cut into sales to outside customers. $41. $1.41.30)}/4.000 posts from the Post Division at $1.9. Suppose the transfer of posts to the Lamp Division will cut into sales to
outside customers
by 15.000
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 3
Chapter 11 . $0.75.
0. the
Lamp Division bought all of its 25. Woodhead Company produces basic posts that
can be sold to
outside customers or sold to the Lamp Division of the M.
B. $1.T. $1.90)]/25.
Last year.00.(12.90.
The
following data are available for last year's activities of the Post Division:
The total fixed costs would be the same for all the alternatives considered below.000
Bloom's Level: Apply
Difficulty: Hard
.Reporting for Control
11-61
The Post Division of the M.
0.

$1. $10.000 favourable.
B. $200 favourable and $3.
D.
B.
(1.250 favourable and $1.
D.496 favourable.
It considers both products to be close substitutes.
respectively.000
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 3
(Appendix 11A) Kyekyeku Company retails two models of a product: Model X
and Model Y. (Appendix 11A) What were the sales volume variances for Model X and
Model Y.1. $1.500 favourable and $2. for last year?
A. for last year?
.1.750 decrease.
C.
respectively. The following data relate to the
company's
operations for last year:
Chapter 11 .250 decrease. Suppose the transfer of posts to the Lamp Division will cut into sales to
outside customers
by 15. (Appendix 11A) What were the sales mix variances for Model X and Model
Y.Reporting for Control
11-63
142. $13.1.008 .Reporting for Control
11-62
141.45 each.45) * 25. $240 favourable and $3.250 increase.41 .
(1. If the Lamp Division chooses to buy all of
its posts
from the outside supplier instead of the Post Division.900 favourable.000)*30 and (1092 .000)*40
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 8
143.680 favourable.Learning Objective: 3
Chapter 11 .
C.000 units.000 decrease. $1. what will be the change in
operating
income for the company as a whole?
A. Further suppose that an outside supplier is willing to provide the
Lamp
Division with basic posts at $1. $1.

Store N had
sales of
$180.000.
C.000 11. Leis Retail Company has two stores: M and N.
D. Reardon Retail Company consists of two stores: A and B. $28. $20.
C. Managers at the local/divisional level have access to better information for
operational
decisions. $31.
B.. $16.
B.000 for the
month.000. Top managers at corporate headquarters have access to better information for
operational
decisions. Managers at the local/divisional level will act in the best interest of the
organization.000.000.000.000.
D.
CM for B = 200.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 2
Learning Objective: 6
Chapter 11 . If net income for the company was
$15. Segment margin B = 31.support of decentralization?
A.
Store A had sales
of $80.000 = 20. what were the traceable fixed expenses in Store B?
A.000 .80. a segment margin of 30%.000.000.Reporting for Control
11-65
148.000. and a segment margin of
$11.36 . The
company as a whole had sales of $200. a contribution margin ratio of 36%. During March. a contribution margin ratio of 30%. During March.
Traceable FC for B = 48.000
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 1
149. Top managers at corporate headquarters will act in the best interest of the
organization.000*. and traceable fixed expenses of $26.000.
and segment
margins for the two stores totalling $31.20.000*.
The company as
.30 = 48.000.000.

(180.000
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 1
Chapter 11 .000/.000 .75 = 360.a whole had a contribution margin ratio of 25% and $120. $300.
D.000 . as it encourages the manager to make investment
decisions that are
more consistent with the interests of the company as a whole.000. Some managers believe that residual income is superior to return on
investment as a means
of measuring performance.000) = 100.
TRUE
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 4
Learning Objective: 5
152. what were the total variable expenses in Store M for
the month?
A. $140.
B.25 * .000*. or reducing operating assets. In responsibility accounting.
FALSE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 1
151.000.3 +
26. $260.000 in total contribution
margin. reducing
expenses. The return on investment can ordinarily be improved by either increasing
sales.
Total VC = 120.Reporting for Control
11-66
True / False Questions
150.
VC of M = 360.000.
Based on this information. each segment in an organization should be
charged with the
costs for which it is responsible and over which it has control plus its share of
common
organizational costs.000. $360.100. VC of N = 180.000.000.
TRUE
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 4
.
C.

TRUE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 4
156. Residual income is the operating income that an investment centre earns
above the
minimum required return on the investment in operating assets. a change in total sales will NOT affect ROI.
TRUE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 4
155. The use of return on investment as a performance measure may lead
managers to make
decisions that are NOT in the best interests of the company as a whole. which the divisions otherwise would have to provide for
themselves.Reporting for Control
11-67
154. There is a growing trend toward greater centralization for effective control as
more
businesses go global.
FALSE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
.
TRUE
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 5
157. Allocations of corporate headquarters expenses to divisions used in return
on investment
calculations should be limited to the cost of those actual services provided by
central
headquarters.
FALSE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 4
Chapter 11 . Since the sales figure is neutral in the return on investment (ROI) formula.153.
ROI = Margin x
Turnover.

TRUE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 7
160.Reporting for Control
11-68
158. An increase in appraisal costs will usually result in an increase in internal
failure costs.Reporting for Control
11-69
.
TRUE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 7
161.
TRUE
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 7
Chapter 11 . a company should usually try to
redistribute its quality
costs more toward prevention and appraisal. Quality of conformance is the degree to which an actual product meets its
design
specifications and is free of defects or other problems that may affect
appearance or
performance.Chapter 11 . To minimize its total quality costs. Prevention costs and appraisal costs are incurred in an effort to keep poor
quality of
conformance from occurring.
TRUE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 7
159.

TRUE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 3
180.
FALSE
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 1
181. When an intermediate market price for a transferred item exists. an
increase in sales should increase operating income by an amount equal to the
sales multiplied
by the segment margin ratio. Fixed costs that are traceable to a segment may become common if the
segment is divided
into smaller units. The salary paid to a store manager is a traceable fixed expense of the store.Chapter 11 .
TRUE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 1
. the transfer price to other
divisions should
include opportunity costs.
TRUE
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 1
183.
FALSE
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 3
179. Assuming that a segment has both variable expenses and traceable fixed
expenses.Reporting for Control
11-73
178.
TRUE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 1
Chapter 11 . When a division is operating at full capacity. Segmented statements for internal use should be prepared in the
contribution format. it
represents a lower limit
on the charge that should be made on transfers between divisions.Reporting for Control
11-74
182.

Division O had a
segment margin of $9.184.
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 1
Chapter 11 . Hatch Company has two divisions: O and E. The following data were
gathered on activities
last month:
Required:
.000 and variable costs equal to 70% of sales.000. a
segment margin of $25. Traceable
fixed costs for
Division E were $19. The Winter Products Division of American Sports Corporation produces and
markets two
products for use in the snow: Sleds and Saucers.
prepare segmented income statements showing the Total as well as amounts for
Division 0 and
E. Hatch Company as a whole had a contribution margin
of 40%.Reporting for Control
11-76
186.000 and sales of $200. Common costs of $10.
TRUE
Bloom's Level: Remember
Difficulty: Easy
Learning Objective: 1
Chapter 11 .000.
Given this data. During the year just ended.000.Reporting for Control
11-75
Essay Questions
185. Only those costs that would disappear over time if a segment were
eliminated should be
considered traceable costs of the segment.

Allocate the total break-even sales between the two products.
e. Prepare a segmented income statement in the contribution format for last
month. This is the standard case where break-even sales can be calculated
separately for each
.
b. showing
both "Amount" and "Percent" columns for the division as a whole and for each
product. if necessary. the results of the segmented
income
statement prepared in part (a) above. Again. Calculate the total break-even sales (in both units
AND dollars) for
last month. Allocate the total break-even sales
between the two
products.
c. assuming that none of the fixed production costs and fixed selling
expenses is
traceable. Refer to the original data and.Reporting for Control
11-77
a. Calculate the total break-even sales (in
both units AND
dollars) for last month. the results of the segmented
income statement
prepared in part (a) above. the total administrative expenses of
the division
are not traceable to the two products. if necessary.
b. This is the main difficulty. All fixed expenses have to be traceable to the two products in order to
calculate separate
break-even sales for each product. Why might it be very difficult to calculate separate break-even sales for each
product?
c.
d. assuming that the "allocated" amounts of the division's
administrative
expenses are fixed and actually traceable. The expenses
are rather
common as indicated in the segmented income statement. How reasonable are the total break-even sales numbers calculated in parts (c)
and (d) given
the actual results for last month?
Chapter 11 . However.
d. refer to the original data and.a.

The IT Corporation produces and markets two types of electronic
calculators: Model 11
and Model 12. Calculate the total break-even sales (in both units
AND dollars) for
last month. the results of the segmented
income statement
prepared in part (a) above. The following data were gathered on activities last month:
Required:
a.
. Refer to the original data and. Prepare a segmented income statement in the contribution format for last
month.
b. assuming that none of the fixed production costs and fixed selling
expenses is
traceable. the company reported positive
profits when
actual sales exceeded the break-even sales. The total break-even sales numbers are reasonable in both cases because
they are less the
reported total actual sales volume. showing
both "Amount" and "Percent" columns for the company as a whole and for each
model.Reporting for Control
11-79
187. if necessary.Reporting for Control
11-78
e.product because there are no common or joint costs.
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 1
Chapter 11 . In other words. Allocate the total break-even sales between the two models. Why might it be very difficult to calculate separate break-even sales for each
model?
c.
Chapter 11 .

This is the standard case where break-even sales can be calculated
separately for each
product because there are no common or joint costs. Again. the total administrative expenses of
the division
are not traceable to the two products.
d. if necessary. Allocate the total break-even sales between the
two models.
b. assuming that the "allocated" amounts of the company's
administrative
expenses are actually traceable. The expenses
are rather
common as indicated in the segmented income statement.
e. However. Calculate the total break-even sales (in
both units AND
dollars) for last month.
Chapter 11 .d. All fixed expenses have to be traceable to the two products in order to
calculate separate
break-even sales for each product.Reporting for Control
11-80
a.Reporting for Control
11-81
e. refer to the original data and.
c. How reasonable are the total break-even sales numbers calculated in parts (c)
and (d) given
the actual results for last month?
Chapter 11 . The total break-even sales numbers are reasonable in both cases because
they are less the
. This is the main difficulty. the results of the segmented
income
statement prepared in part (a) above.

reported total actual sales volume. the company reported positive
profits when
actual sales exceeded the break-even sales. Financial data for Beaker Company for last year appear below:
The company paid dividends of $2.
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 1
Chapter 11 . The "Investment in Cedar
Company" on the
statement of financial position represents an investment in the stock of another
company.
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 4
Learning Objective: 5
. In other words.100 last year. and return on investment for last
year.Reporting for Control
11-82
188. turnover.Reporting for Control
11-83
a) Compute the company's margin.
Required:
Chapter 11 .
What was the company's residual income last year?
a) Operating assets do not include investments in other companies or in
undeveloped land.
b) The Board of Directors of Beaker Company have set a minimum required
return of 20%.

Chapter 11 . The following data have been extracted from the year-end reports of two
companies:
. Financial data for Bingham Company for last year appear below:
The "Investment in Carr Company" on the statement of financial position
represents an
investment in the stock of another company.Reporting for Control
11-84
189.
What was the company's residual income last year?
a) Operating assets do not include investments in other companies or in
undeveloped land.
b) The Board of Directors of Beaker Company have set a minimum required
return of 15%. turnover.Chapter 11 .Reporting for Control
11-85
Required:
a) Compute the company's margin.Reporting for Control
11-86
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 4
Learning Objective: 5
190. and return on investment for last
year.
Chapter 11 .

Reporting for Control
11-88
192.
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 4
Chapter 11 .
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 7
. and external failure costs. internal failure costs.Company X and Company Y:
Required:
Fill in the missing data on the above table.
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 4
Chapter 11 . Galant Company's quality cost report is to be based on the following data:
Required:
Prepare a quality cost report in good form with separate sections for prevention
costs. The following data have been extracted from the year-end reports of two
companies:
Company X and Company Y:
Required:
Fill in the missing data on the above table. appraisal
costs.Reporting for Control
11-87
191.

and external failure costs. Galben Company's quality cost report is to be based on the following data:
Required:
Prepare a quality cost report in good form with separate sections for prevention
costs. internal failure costs.Chapter 11 .
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 7
Chapter 11 .Reporting for Control
11-91
195. and external failure costs.Reporting for Control
11-90
194. internal failure costs. appraisal
costs. Galati Company's quality cost report is to be based on the following data:
Required:
Prepare a quality cost report in good form with separate sections for prevention
costs.Reporting for Control
11-89
193.
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 7
Chapter 11 . Harvie Company's quality cost report is to be based on the following data:
Required:
. appraisal
costs.

In the next year Harui should see a decline in both internal and external failure
costs due to
the efforts of this year especially due to the implementation of preention and
appraisal efforts.
b. and external failure costs. internal failure costs.
appraisal costs.Reporting for Control
11-93
197.
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 7
Chapter 11 .
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 7
Chapter 11 . and external failure costs.
b) If Harui's efforts to ensure quality conformance are working.
. internal failure costs. appraisal
costs. how would you
expect the
Quality Cost Report next year to compare with this one?
Chapter 11 .Reporting for Control
11-92
196. appraisal
costs.Prepare a quality cost report in good form with separate sections for prevention
costs. Harwood Company's quality cost report is to be based on the following data:
Required:
Prepare a quality cost report in good form with separate sections for prevention
costs. Harui Company's quality cost report is to be based on the following data:
Required:
a) Prepare a quality cost report in good form with separate sections for
prevention costs. and external failure costs. internal failure costs.Reporting for Control
11-94
a.

The carpets are sold by rolls. The following is a summary of the company's
activities for last
year:
Required:
a) Assume the two grades of carpet are close substitutes.
c) Comment on the appropriateness of the assumption of close substitution
between the two
grades of carpet. internal failure costs.Reporting for Control
11-97
200.Reporting for Control
11-99
.Reporting for Control
11-98
201. Comment also on the effect. appraisal
costs.
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 7
Chapter 11 . (Appendix 11A) Iraj Company retails two grades of Persian carpets: Grade
X and Grade Y. Calculate the sales
volume variance
for each grade of carpet and analyze each into a sales mix variance and a sales
quantity variance. and external failure costs. on the analysis in part a)
above if this
assumption is considered inappropriate.
Chapter 11 .Chapter 11 . if any. Rigoletto Company's quality cost report is to be based on the following data:
Required:
Prepare a quality cost report in good form with separate sections for prevention
costs.
b) Analyze the sum of the sales quantity variance into its two components:
market volume
variance and market share variance.

20 are the
budgeted mix
proportions of Grade X and Grade Y. then each
grade of carpet is
assumed to compete in a separate and different market or industry.040 is the weighted-average budgeted contribution margin per roll:
(0. The sales
volume variance
for each grade can still be calculated.For the following.000) = $640 + $400
= $1. Grade Y appears to belong to a class of its own with a very
high
contribution margin. This grade may be serving and competing in a different
market.
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 8
.040
c) The assumption of close substitution between the two grades of carpet may be
difficult to
justify.10 are the actual mix proportions and 0. respectively. For example.90 and 0.Reporting for Control
11-100
Note that the sum of the sales mix variance and sales quantity variance for each
grade of carpet
equals the sales volume variance for the grade.
If the assumption of close substitution is considered inappropriate. That is:
b) Analysis of the total sales quantity variance into a market volume and a market
share
variance:
* $1. instead of lumping both together
as done in part
b) above. but any further analysis into market volume
and market
share variances will be for each grade of carpet.
Chapter 11 .20 x $2.80 x $800) + (0.
a) Sales volume variances:
Analysis of the sales volume variance into a sales mix variance and a sales
quantity variance is
as follows:
Sales mix variances:
Sales quantity variances:
* 0.80 and 0. F = favourable and U = unfavourable.

which it presently is
producing.Chapter 11 .
Required:
a) What is the range of transfer prices within which both the divisions' profits
would increase as
a result of agreeing to the transfer of 20. and requires $12 per unit in variable production costs.
In order to have time and space to produce the new castings. The RB4
sells for $30 per unit.Reporting for Control
11-102
a) From the perspective of the Castings Division. profits would increase as a
result of the
transfer providing that:
Transfer price > Variable cost + Opportunity cost
. Production and sales of this casting would drop by 20% if the new
casting is
produced.000 special castings each year on a continuing basis. The company is now producing and selling 100.000 castings per year from the Castings
Division to the
Machine Products Division?
b) Is it in the best interests of Larinore Corporation for this transfer to take place?
Explain. The special castings
would require $10
per unit in variable production costs. Larinore Corporation has a Castings Division that does casting work of
various types.Reporting for Control
11-101
202. The Machine Products Division has a bid
from an outside
supplier of $29 per unit for the castings. The
company's Machine Products Division has asked the Castings Division to provide
it with
20.000
units of the RB4
each year. the Castings
Division would have
to cut back production of another casting: the RB4.
Chapter 11 . Boxing and shipping costs for the new
special casting
would be only $1 per unit.
Boxing and
shipping costs of the RB4 are $4 per unit.

the transfer should take place. and requires $25 per unit in variable production costs. The Machine Products Division has a bid
from an outside
supplier of $30 per unit for the castings. but the cost of purchasing them
from the
outside supplier is $29. the Castings
Division would have to
cut back production of another casting: the NW2.
Boxing and
.000 special castings each year on a continuing basis. From the viewpoint of the entire company.
Transfer price < $29
Combining the two requirements. the company's profits increase by $4 for each
of the castings
that are used within the company rather than sold on the outside market. divided by the
number of units
transferred:
Opportunity cost = [($30 .
the cost of
transferring the units within the company is $25.$4) x 20.
The NW2
sells for $40 per unit.
Transfer price > ($10 + $1) + $14 = $25
From the viewpoint of the purchasing division.
In order to have time and space to produce the new casting. Yes. Therefore. The
company's Machine Products Division has asked the Castings Division to provide
it with
10.Reporting for Control
11-103
203. which it presently is producing.$12 .
Bloom's Level: Evaluate
Difficulty: Hard
Learning Objective: 3
Chapter 11 . Geneva Corporation has a Castings Division that does casting work of
various types. the transfer price must be less
than the cost of
buying the units from the outside supplier.000 = $14
Therefore.The opportunity cost is the contribution margin on the lost sales. we get the following range of transfer prices:
$25 < Transfer price < $29
b.000]/20. The special castings
would require $20
per unit in variable production costs.

$25 . within which both the divisions'
profits would
increase as a result of agreeing to the transfer of 10. Therefore. if any. profits would increase as a
result of the
transfer providing that:
Transfer price > Variable cost + Opportunity cost
The opportunity cost is the contribution margin on the lost sales. divided by the
number of units
transferred:
Opportunity cost = [($40 .
b) No.shipping costs of the NW2 are $4 per unit. we find that no feasible range of transfer prices
exists under
current conditions.Reporting for Control
11-104
a) From the perspective of the Castings Division.
Bloom's Level: Evaluate
Difficulty: Hard
Learning Objective: 3
. From the viewpoint of the entire
company. Boxing and shipping costs for the new
special
casting would be only $2 per unit. Production and sales of this casting would drop by 10% if
the new casting
were produced. the transfer should not take place. The company is now producing and selling
100.
Required:
a) What is the range of transfer prices.000 units of
the NW2 each year. but the cost of purchasing them
from the
outside supplier is $30.000 = $11
Therefore.$4) x 10. the transfer price must be less
than the cost of
buying the units from the outside supplier.
Transfer price > ($20 + $2) + $11 = $33
From the viewpoint of the purchasing division.
Transfer price < $30
Combining the two requirements. the company's profits decrease by $3 for each
casting that is
produced within the company rather than purchased in the outside market.000]/10.
Chapter 11 .000 castings per year from
the Castings
Division to the Machine Products Division?
b) Is it in the best interests of Geneva Corporation for this transfer to take place?
Explain. the cost of
transferring the units within the company is $33.

000 + $40*X.Reporting for Control
11-105
204. unfavourable. where X
represents the
expected number of units of its only product to be manufactured and sold. however. Reported actual results for February
were as
follows:
*Actual industry sales volume was 60.
b) Calculate the sales volume variance and analyze it into market-size (industry
volume)
variance and market-share variance.000 units. Both were. (Appendix 11A) Yukon Company expressed the total expenses (Y)
component of its
master budget for March with the cost formula Y = $100.
Required:
a) Calculate the flexible budget variance and analyze it into sales price variance
and
cost/expense variance(s). the sales manager reduced prices probably to increase market share. would you recommend a
bonus be paid to
the sales manager? Why or why not?
Chapter 11 .Chapter 11 .
c) On the basis of your analysis in parts (a) and (b).000 units
based on an
estimated industry volume of 50.Reporting for Control
11-106
a) Flexible budget variance
Per unit amounts for calculations:
b)
Numbers for calculations
c) No bonus would be recommended. In a
growing
market. The
budgeted
average selling price per unit was $65 for budgeted sales volume 5.
.000 units. The sales manager had the most influence
on two
variances: sales price and market-share.
This did not work
because the company lost market share.

would you conclude recommend
a bonus be
paid to the sales manager? Why or why not?
d) How successful was the marketing manager in controlling the cost of the
marketing activity?
Explain.000 units
Actual results for January were as follows:
Required:
a) (Appendix 11A) Calculate the flexible budget variance and analyze it into sales
price
variance and cost/expense variance(s).
b) (Appendix 11A) Calculate the sales volume variance and analyze it into
market-size
(industry volume) variance and market-share variance.Chapter 11 .Reporting for Control
11-107
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 8
Chapter 11 .Reporting for Control
11-108
205.
c) (Appendix 11A) Assume that the marketing manager has direct influence in
setting selling
prices.
. On the basis of your analysis in part (b). (Appendices 11A and 11B) The following is a summarized master budget
that Moose Jaw
Company prepared for February:
*Based on estimated industry volume (market-size) of 180.

Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 8
Learning Objective: 9
Chapter 12 .Reporting for Control
11-109
a) Flexible budget variance
b)
Chapter 11 . the variable portion which had a favourable spending variance.Chapter 11 .
d) The marketing manager was equally successful in controlling marketing
expenses. in
particular.Reporting for Control
11-110
c) Notwithstanding reduced sales of 600 units. a bonus should be paid to the
marketing manager
for increasing the company's market share from budgeted 5% to 6%.Relevant Costs for Decision Making
12-1
Chapter 12
. The
manager was on
target regarding the fixed marketing expense. This
performance is
impressive when the manager was also able to increase selling prices in a
declining market.

.
C. What should a firm faced with a production constraint do to maximize total
contribution
margin?
A.
C.
D. Promote those products having the highest unit contribution margins. Consider a decision facing a firm of either accepting or rejecting a special offer
for one of its
products. Which of the following costs are always relevant in decision making?
A. Promote those products having the highest contribution margins and
contribution margin
ratios. Sunk costs. Common fixed overhead that will continue if the special offer is NOT accepted.Relevant Costs for Decision Making
12-2
3.
C.Relevant Costs for Decision Making
Multiple Choice Questions
1. Variable costs.
Bloom's Level: Remember
Difficulty: Easy
Learning Objective: 1
2. Promote those products having the highest contribution margin ratios.
B. Avoidable costs. Fixed costs.
B.
D.
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 3
4.
B. Promote those products having the highest contribution margin per unit of
constrained
resource. Every machine and person in the plant is working at the maximum possible
rate.
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 1
Learning Objective: 2
Chapter 12 . Which of the following best describes a plant operating at capacity?
A.
B.
D. Fixed overhead that will be avoided if the special offer is accepted. Variable overhead. Which of the following costs is NOT relevant?
A. Direct materials. Only some specific machines or processes are operating at the maximum rate
possible.

Pay overtime to workers assigned to workstations located after the bottleneck
in the
production process.
B. Subcontract work that would otherwise require use of the bottleneck.
C.
D.
C.
Bloom's Level: Remember
Difficulty: Medium
Learning Objective: 2
8. Managers should produce those products with the highest contribution margin
in order to
deal with the constrained resource.
bottleneck)?
A. Fixed manufacturing cost of the component. A vertically integrated firm is more dependent on its suppliers than a firm that is
NOT
.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 2
7.
C. What is the opportunity cost of making a component part in a factory with no
excess
capacity?
A.
D. Fixed costs will need to change to accommodate increased demand. One of several products produced from a common input.e. Any product produced by a firm with more than one product line. Any product that consists of several parts. Which of the following is NOT an effective way of dealing with a production
constraint (i. Any product involved in a make or buy decision.
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 2
Learning Objective: 3
5. Cost of the production given up in order to manufacture the component. Variable manufacturing cost of the component. Pay overtime to workers assigned to the bottleneck.
D.
B. Consider the following statements:
I. Reduce the number of defective units produced at the bottleneck.C. What is a joint product?
A.
D. Net benefit foregone from the best alternative use of the capacity required.
B.Relevant Costs for Decision Making
12-3
6.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 3
Chapter 12 ..

000. Re-machine and $25.
II. III only. A vertically integrated firm realizes profits from the parts it is "making" instead
of "buying"
as well as profits from its regular operations. and what are the total relevant costs for that alternative?
A.000 = 4. If the lanterns are re-machined for $5.
D.1. The Lantern Corporation has 1.
Which of the above statements represent advantages to a firm that is vertically
integrated?
A. the lanterns could be sold for scrap for $1.5.000 .Relevant Costs for Decision Making
12-4
9.000. I only. a
special order
. I and II only.000.000. 240.
III. Scrap and $19. Relay Corporation manufactures batons.
C. Which
alternative is
more desirable.000. Alternatively. Based on Relay's
predictions for next
year.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 2
Chapter 12 .000 . Many firms feel they can control quality better by making their own parts.000 batons will be sold at the regular price of $5. Total relevant cost to remachine are
$5. Re-machine and $5.000 advantage to re-machine.00 each.
B.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
10.
B. Scrap and $20.000 obsolete lanterns that are carried in
inventory at a
manufacturing cost of $20.000.
C.000.000.
9.
D. they
could be sold
for $9. II and III only.000
batons a year at a
variable cost of $750. Relay can manufacture 300.000 and a fixed cost of $450.vertically integrated.000. In addition.

)
A. $60.
15.
C.
Total fixed costs
would be unaffected by this order.55) + 15.000 increase.
Jordan expects its
regular sales next year to be 18.
C. A
summary of operating results for last year follows:
A foreign distributor has offered to buy 15.
B. $36. If Jordan accepts this offer and rejects
some business
from regular customers so as not to exceed capacity.was placed for 60. $855. what would be the total
operating income
next year? (Assume that the total fixed costs would be the same no matter how
many units are
produced and sold.000 units at $90 per unit next year.000]*60.
B.55) .000.000. $180.000.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
. $390.Relevant Costs for Decision Making
12-5
11.
D.000*(100 .000 batons to be sold at a 40% discount off the regular price. The manufacturing capacity of Jordan Company's facilities is 30.000 decrease. $30.
D.000 units a
year.40) . By what amount would the company's
operating income be
increased or decreased as a result of the special order?
A.000.000/300.000 increase.
[5 * (1 -.000 increase.000*(90 .495. $840.000 units.750. $705.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 2
Chapter 12 .

Relevant Costs for Decision Making
12-6
12. The contribution margin in the department is $50. Wagner's unit product
cost based on the
full capacity of 200. A study has been conducted to determine if one of the departments in Parry
Company
should be discontinued. Fixed
.000 units has been received from a foreign
distributor. what
should be the minimum acceptable selling price per unit?
A.
Wagner has sufficient idle capacity to manufacture the additional units.
4 + 5 + 6*(1 . Twothirds of the
manufacturing overhead is fixed and would not be affected by this order.
D. $18. $16.Chapter 12 . $14. Assume
that direct
labour is an avoidable cost in this decision.
C. $15. In negotiating a price for the special
order.2/3) + 3
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
Chapter 12 .000 per
year. The
only selling costs that would be incurred on this order would be $3 per unit for
shipping. Wagner Company sells Product A for $21 per unit.Relevant Costs for Decision Making
12-7
13.
B.000 units is as follows:
A special order offering to buy 20.

50.
C.Relevant Costs for Decision Making
12-8
.
D.000 per year. An increase of $10.000.
.000
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 1
Learning Objective: 2
14. An increase of $30.140.
Total sales of the
product are $200. A decrease of $10.000. the company's overall operating income per
year would
change by how much?
A.000). An increase of $20. An increase of $25. It is estimated that
$40.000.000 per year.000 per year. the company's overall operating income per year would
change by how
much?
A. A study has been conducted to determine if Product A should be dropped.000 of
these fixed expenses will continue even if the product is dropped. A decrease of $10.10.000.
Total fixed
expenses charged to the product are $90.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
Chapter 12 .40. Add avoidable costs (90.expenses charged to the department are $65.000. These data
indicate that if
the department were discontinued. These data
indicate that if
Product A is dropped.
Lost CM = 200.000 .000).
B.
C.000.000.000.000 = . A decrease of $25. A decrease of $20.
Decreased
Operating Income of 10.000 per year. total variable expenses are $140. The company estimates
that $40.000 = (60.
D.000 .000 of these
fixed expenses could be eliminated if the department is discontinued.000 + 40.
B.

000 cannot be avoided.
B. Manor Company plans to discontinue a department that has a contribution
margin of
$24.
D.21.000 of fixed costs.70. An increase of $24. A decrease of $3.000.000 .000 + (48.
C. Lusk Company produces and sells 15.
C.000. A decrease of $24.000)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
Chapter 12 . An increase of $10.000 cannot be
avoided.
D. Gata Co. A decrease of $60.000 in fixed expenses charged to Product A would continue
even if the
product were discontinued. What would
be the effect of discontinuing the department on Manor's overall operating
income?
A. What
would be the
.000)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
16. A study has
been
conducted concerning whether Product A should be discontinued.000.Relevant Costs for Decision Making
12-9
17.000 and $48. These data indicate that if Product A were
discontinued. An increase of $3. the
company's overall monthly operating income would change by how much?
A.000.000.24. An increase of $20.000.000 in fixed costs.
. and variable expenses are $14 per unit. plans to discontinue a department that has a $48.000.000.
The selling price
of Product A is $20 per unit. $21.15.000 of the $100. $42.000*(20 . Of the fixed costs.000 contribution
margin and
$96.000 . A decrease of $20. Of these fixed costs. The study
shows that
$70.
(.14) + (100.15.000 units of Product A each month.
B.

effect of discontinuing the department on Gata's overall operating income?
A. Given these data.000.000 .000). A decrease of $6. An increase of $48.000 in fixed costs.
B. ($60. An increase of $6.Relevant Costs for Decision Making
12-10
19.000.000.000.
D. ($75. what
would be the
overall company's operating income (loss) if the Eastern Division were
eliminated?
A.000 in total.
. the direct fixed costs associated with this division could
be avoided.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
Chapter 12 .
C.
15. A decrease of $48. Manor Company plans to discontinue a department that has a contribution
margin of
$25. ($155.000.000 and $50.
However.000 + (96. Of the fixed costs.
B.000.000)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
18.000.000).
If the Eastern
Division were eliminated. The divisions
have the
following revenues and expenses:
The management of Cook is considering the elimination of the Eastern Division.48.
. The Cook Company has two divisions: Eastern and Western.000 cannot be
eliminated. A decrease of $4. corporate costs would still be $305.
B.000 .170. $21.42. What
would be the effect on the operating income of Manor Company of discontinuing
this
department?
A.000). $15.
D. An increase of $4.
C.

Green Company produces 1. Pitkin Company produces a part used in the manufacture of one of its
products.
D.000 decrease.
D. $2.000 increase. which are used in the
assembly of one of its
products. The unit product cost of these parts is:
The part can be purchased from an outside supplier for $20 per unit.Relevant Costs for Decision Making
12-11
21.000 .000)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
20.000.
. $5.25. computed as follows:
An outside supplier has offered to provide the annual requirement of 10. $1.000 decrease. Assume
that direct
labour is an avoidable cost in this decision. An increase of $25. What
will be the annual impact on the company's operating income of buying the part
from the
outside supplier?
A. two-thirds of the fixed manufacturing costs can be
eliminated. If the part is
purchased
from the outside supplier.
C. The unit
product cost of the part is $33. what will be the
per-unit dollar
advantage or disadvantage of purchasing the parts from the outside supplier?
A.20]*1. $1.000.000 increase.
.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
Chapter 12 . Based on these data. A decrease of $25.000 of
the parts for
only $27 each.21.C. $1 advantage. The company estimates that 30% of the fixed manufacturing
overhead costs
above will continue if the parts are purchased from the outside supplier.000 parts per year.
B.000 + (50.
[(12 + 9*2/3) .

$3 advantage.
Cost to make = 12 + 8 + 3 + 10*(1 -.000. Assume that direct labour is an avoidable
cost in this
decision.
C. $720. 60% of the fixed manufacturing overhead costs
would continue
regardless of what decision is made. what would be the total
relevant costs to
make the part?
A.000 units of a certain part to use in one of its
products.000*[(4 + 16 + 8 + 10*(1 -.
20. In addition. $560.
D. Cardinal Company needs 20. $1 disadvantage.
D. Cardinal would not have
any use for the
released capacity.B.27
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
Chapter 12 . $640. $4 disadvantage. $760. If
Cardinal
were to buy the part from Oriole instead of making it.30) = $30.000.000. In deciding whether to make or buy the part.000.Relevant Costs for Decision Making
12-12
22.60)]
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
.
B.
C. The
following information is available:
Cost to Cardinal to make the part:
Oriole Company has offered to sell this part to Cardinal Company for $36 each. Advantage to buy = 30 .

(2 + 8 + 4 + 6*1/3)*5. Golden has
determined that two-thirds of the fixed manufacturing overhead will continue even
if Part
10541 is purchased from Brown. the unit product cost of Part 10541 is as
follows:
Brown Company has offered to sell Golden 5.
B. which is
used in one of its
products. what are the relevant costs to
Golden of
manufacturing the parts internally?
A.Relevant Costs for Decision Making
12-14
24.Relevant Costs for Decision Making
12-13
23.
To determine whether to accept Brown's offer.
The
. $95.Chapter 12 .000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
Chapter 12 .000.000 units of Part 10541 for $19 a
unit.000.000 units of Part 10541. Golden. Assume that direct labour is an avoidable cost
in this decision. has been manufacturing 5.
C. The following standard costs pertain to a component part manufactured by
Ashby
Company:
The company can purchase the part from an outside supplier for $25 per unit. Inc.
D. $70. At this level of production. $80.000.000. $90.

000 lower. $2.000 higher. $19.000 higher.
C. $276.
A.
C.Relevant Costs for Decision Making
12-15
25.000 higher. Assume that direct labour is an avoidable cost in this decision. If SP Company decides to
continue
making the motor. If SP
Company
decides not to make the motors.50 + 5. The SP Company makes 40.60)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
Chapter 12 .
The average cost per motor at this level of activity consists of:
An outside supplier recently began producing a comparable motor that could be
used in the
sewing machine.
B. The price offered to SP Company for this motor is $18. how much higher or lower would net income be than if the
motors are
purchased from the outside suppler? Assume that direct labour is a variable cost
in this
company.manufacturing overhead is 60% fixed. $15. there would be no other use for the production
facilities.000 motors to be used in the production of its
sewing machines. and
total fixed factory overhead costs would not change. What
would be the
relevant amount of the standard cost per unit in a decision of whether to make
the part internally
or buy it from the external supplier?
A. $178.
[18 . $92.
2 + 5 + 20*(1 -.(5.
D.000
Bloom's Level: Apply
. $86.
D. $27. and this fixed portion would not be
affected by this
decision.60 + 4.75)]*40.
B.

Relevant Costs for Decision Making
12-17
27. Manico Company produces three products—X. and Y third. & Z—with the following
characteristics:
The company has only 2. L and C:
The company can only perform 65.
C. Orders for X first.
CM/hr.000 machine hours available each month.
D. in what sequence should orders be filled if the company
wants to maximize
its total contribution margin?
A.
B.
B.000. Z consecutively = 8/5.Relevant Costs for Decision Making
12-16
26.820.
C. $910. X second. and Z third. and Y third. What is the largest possible total
contribution
margin that can be realized each period?
A. 9/6
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 3
Chapter 12 . Consider the following production and cost data for two products.000 machine setups each period due to
limited skilled labour. $845.000. 4/3. $975.
D.Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
Chapter 12 . X second. $1. Y. If demand
exceeds the
company's capacity.000. Orders for Z first and no orders for X or Y.
. Y. Orders for Z first.
and there is unlimited demand for each product.000. for X. Z second. Orders for Y first.

000.000/8 = 8.
What is the correct course of action regarding Product A?
A. Joint product costs total $60.50
per unit. It should be processed further. It should be sold at the split-off point.500. and C—from a single
raw material
input. It should be sold at the split-off point. Product A can be sold at the split-off point for $40. and 15. Products A. It should be discontinued since revenues after further processing are less than
total joint
. 120/8.125 units of C at $120
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 3
28. since further processing will result in a
loss of $2.
C. and C are produced from a single raw material input. Incremental cost = 12. since this will increase profits by $2. C = 130/10.500 each
period.
Incremental Revenue = (5 .2)*5.
D. since this will increase profits by $12. 65. 10. It should be processed further.500 each
period. since further processing would result in a
loss of $0. What is the
correct course of
action regarding Product A?
A. from which 5.
15. The Wyeth Company produces three products—A.000.000 .
B.500 and then sold for $5 per unit. or it can be
processed further at a
total cost of $15.000. B.000
annually. B.000 units of
C can be
produced each period.000.500 =
2.12.CM/setup for L. The raw
material costs
are $90.000 units of A. Product A can be sold at the split-off point for $2 per unit.000 and then sold for $58.
or it can be
processed further at a cost of $12.500
each period.000 = 15.500
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
Chapter 12 .Relevant Costs for Decision Making
12-18
29.000 units of B.

C.Relevant Costs for Decision Making
12-20
The following are the Wyeth Company's unit costs of making and selling an item
at a volume
of 10.Relevant Costs for Decision Making
12-19
30. 30 .000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
Chapter 12 .7 = 3. and Z from a single raw material input
in a joint
production process.product costs.
58.15.21 .40. which represents the company's capacity:
. It should be sold at the split-off point.7. It should be processed further only if its share of the total joint product costs is
less than the
incremental revenues from further processing. Y. Option C
D. It should be processed further and then sold.000 .
B. WP Company produces products X.7 = . Y.000.19 .1
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
Chapter 12 .24 .
D.50 = 0. Which of the products should
be processed
beyond the split-off point?
A. Z = 29 . Option B
C. Option A
B.50.000 . 29 . Option D
X. Budgeted data for the next month is as follows:
The cost of the joint raw material input is $149.000 units per month.

($500). $6.
D. $1. $400. Assume the company has 50 units left over from last year that have small
defects and which
will have to be sold at a reduced price as scrap. An order has been received from
a customer in a
foreign market for 1. The variable selling and administrative costs
would have to
be incurred for this special order as well as all other sales. How much will the company's operating income be increased or (decreased)
if it prices the
1.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
Chapter 12 .00. Fixed
costs.500.50.000 and 10.
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
.000 units per month.
B.50.
31.
B. The order would not affect current sales.
Only selling and administrative expenses are relevant.
(6 . are constant within the relevant
range between
8. What cost is relevant as a guide for setting a minimum price on
these defective
units?
A.000 units in the special order at $6 each?
A.50 .Relevant Costs for Decision Making
12-21
32.
C.2 -.
D.000 units per month. This would have no effect on the
company's
other sales. $2.Present sales amount to 9. $5.000 units.1. $3.1 . both
manufacturing and selling and administrative.
C.000. $1. Assume direct labour
is a variable
cost.50.50)*1.

$20. $0. $10.
33. What is the sunk cost in this situation?
A.
The original cost of inventory is sunk. the calculators can be sold in their present
condition for
$11.000.
C. $26.800.200.
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 1
Chapter 12 .
B.000.
30.
(10.10. $30. $67. What is the net advantage or disadvantage to the company from upgrading
the calculators?
A.
D.
D.800.000 disadvantage.
C.000.
C.000 .200
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
35. $8.11. At what selling price
per unit would
the company be as well off as if it just sold the calculators in their present
condition?
A. $53. $8. If these calculators are upgraded at a total cost of $10.Relevant Costs for Decision Making
12-22
34. $11. $8.
B.000 + 11. Assume that Tolar decides to upgrade the calculators.000 .200)/400
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2
.
D.800 advantage. they
can be sold for
a total of $30.The Tolar Company has 400 obsolete desk calculators that are carried in
inventory at a total
cost of $26. As an alternative.200.
B.000 disadvantage. $18.000 advantage.

D. $14.000 jigs per month through regular channels at a selling
price of $11 each. $7. At what selling price per unit should Immanuel be indifferent between
accepting or
rejecting the special offer?
A. $7. the
company is selling 80.
[7 .
C.
however. The company has a
production
capacity of 90.
For these regular sales.
B.000 jigs per month with total fixed production costs of $144. it will
incur shipping costs of $0. $1. $3.
4.6 . At
present. Immanuel will not incur any selling expense.30 per unit.30)]*6.(4.600. $12.
B.400.800.60 + . $4. If Immanuel accepts this special order.30
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
.90.000.000
jigs to be
shipped at the end of the month at a selling price of $7 each.
Chapter 12 .+ . the cost for one jig is:
If the special order is accepted. what will be the increase in the
monthly operating
income?
A.Relevant Costs for Decision Making
12-23
36.The Immanuel Company has just obtained a request for a special order of 6.40. $6.
C.40.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
37.
D.600.70.

$7. Assume
direct labour is a
variable cost.60 .000 units per month.000. However.4. are
constant within the relevant range of 30.000 Homs next year at 15% off the regular
selling price.600(#57) .000*(11 .
.1. A special order has been received
at Varone from
the Fairview Company to purchase 8. and Varone would
have no use for
it after the special order was filled.000 Homs per year. and all
other conditions
remain the same.Chapter 12 .Relevant Costs for Decision Making
12-24
38. what will be the change
in monthly
operating income?
A. the variable selling expense will be reduced by
25%. The company has
the capacity to
produce 40.
Varone would have to purchase a specialized machine to engrave the Fairview
name on each
Hom in the special order. both manufacturing and
selling. If Immanuel accepts the special order. Suppose that total regular sales of jigs are 85. $5.000 increase. The total fixed costs.
D.000 Homs per year. $3. $14.
12.
B.600 decrease. Per-unit costs to produce and sell one Hom at
that activity level
follow:
The regular selling price for one Hom is $60.000 to 40.400 decrease. This machine would cost $12.
C. If
this special order is accepted.200 increase.1)
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2
The Varone Company makes a single product called a Hom.

Relevant Costs for Decision Making
12-25
39.25)]*8.
C.000 increase. $68..15) .8*(1 .000
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2
40.
D.000 increase. what would be the effect on
operating
income next year due to accepting this order?
A. $52.
20 + 10 + 5 + 8*(1 .20 .000/8.
B.Relevant Costs for Decision Making
12-26
.000 increase. $39.
[60*(1 .12..60.000 Homs next year through regular channels
and the special
order is accepted at 15% off the regular selling price.
at what
special order price from Fairview should Varone be economically indifferent
between either
accepting or not accepting this special order?
A.000 .20.00.000
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2
Chapter 12 .
B.000 decrease.25) + 12. $80. If Varone can expect to sell 32..10 .50.
D. $24.
C. $42.000 Homs next year through regular channels.5.Chapter 12 . If Varone can expect to sell 32. $51. $48.

.400.960 Homs next year through regular
channels and
the special order is accepted for 15% off the regular selling price. $13.960 .20 .000 units to be
delivered this
month at a special discounted price. $35.
B.
68.
Chapter 12 . $33.8.10 per unit. $48. The
variable selling
and administrative expense would be $1.000)] * (60 .
and the special discounted price on the special order is $76.Relevant Costs for Decision Making
12-27
42.41.[37.
C. what would be
the effect on
operating income next year due to accepting this order?
A.480 increase.320 increase.
D.
C. $35.10 . The cost of producing and selling a
single unit of this
product at the company's normal activity level of 40.000. If Varone has an opportunity to sell 37. ($17. ($5.(40.000(#60) .
D.480 decrease.000 .320 decrease. By how
much would
this special order increase (decrease) the company's operating income for the
month?
A.40 per unit.20 less per unit on this order than on
normal sales.5 .000).000). This order would have no effect on the
company's normal
sales and would not change the total amount of the company's fixed costs.
B.
An order has been received from an overseas customer for 2. Suppose there is ample idle capacity to produce the units required by the
overseas customer. $33.8)
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2
Eley Company produces a single product.000 units per month is as
follows:
The normal selling price of the product is $86.
Direct labour is a variable cost in this company.

90. $32. Suppose there is not enough idle capacity to produce all of the units for the
overseas
customer.
86.
D.40 .8.
B. What would be the opportunity cost of each unit
delivered to the
overseas customer?
A.60 + 8.10 + 1.10 + (1.10 . $78.1.10. $9.10 .20)] + [(32.10.50*700)/2. $8.(1. The minimum acceptable price per unit for the special
order is closest to
which of the following?
A.20.1.80 .42.10 + 1.80 .000
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2
43.
B.40.50.
D.20)] * 2.Relevant Costs for Decision Making
12-28
44.10 . Suppose the company is already operating at capacity when the special
order is received
from the overseas customer.60 + 8.1. and accepting the special order would require cutting back on
production of 700 units
for regular customers. $86.80)
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2
Chapter 12 .
C. known as a Tam:
Clemson Company is trying to determine whether to discontinue the manufacture
and sale of
.60 . $69.
[42.70.[76.(42.
C.000]
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2
The Clemson Company reported the following results last year for the
manufacture and sale of
one of its products. $7. $63.78.

5. $65. If the company discontinues the Tam product line.
B.
C.000.000 units. $55.
B. income = 390. 6.
C. $90.000 + 25.500 units.000 increase.000 = 300.390.
D.000 .
. How many Tams would have to be
sold next year for
the company to be as well off as if it just dropped the line and enjoyed the
increase in
contribution margin from other products?
A. The operating results reported above for last year are expected to
continue in the
foreseeable future if the product is not dropped.65. there would be no
change in the
fixed manufacturing costs of the company.000 +
300.000 decrease. what
will be the
change in the annual operating income (loss)?
A.000 decrease.000)
Fixed costs avoided = 275.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
46. Change in op.Relevant Costs for Decision Making
12-29
45.000 .
CM lost = 845.Tams.000 units. 6. Assume that discontinuing the manufacture and sale of Tams will have no
effect on the sale
of other product lines. The fixed manufacturing
overhead represents
the costs of production facilities and equipment that the Tam product shares with
other products
produced by Clemson.000 decrease. $70. Assume that discontinuing the Tam product would result in a $120.
Chapter 12 .000 units. If the Tam product were discontinued.
D.000 = (390.000
increase in the
contribution margin of other product lines. 7.

Additional information regarding Cosmo's operations follows the
statement:
Three-quarters of each store's traceable fixed expenses are avoidable if the store
were to be
closed.000/6.
C.CM/unit = 390.
D.000 + 25.
Management estimates that closing the Town Store would result in a 10%
decrease in Mall
Store sales. ($10.000*3/4= . while closing the Mall Store would not affect Town Store sales.000 .
A decision by Cosmo Inc.10 + 40.000.000)/60
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2
Chapter 12 . Units required = (275.800
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2
.800).000 +
120. ($800). for November is
presented
below.48.
The operating results for November are representative of all months.10.000).500 = $60.000*.Relevant Costs for Decision Making
12-30
47. to close the Town Store would result in what monthly
increase
(decrease) in Cosmo's operating income?
A.
Cosmo allocates common fixed expenses to each store on the basis of sales
dollars.
-36.
B. $4. ($6. Condensed monthly operating income data for Cosmo Inc.

C.
S.
48. > [(130 + 50)*3.130 .P. $249.51. $387. Results for last year for
the manufacture
and sale of Product J are as follows:
Bingham Company anticipates no change in the operating result for Product J in
the foreseeable
.000 + 78.000.000
Bloom's Level: Evaluate
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2
Bingham Company manufactures and sells Product J.000 + 75.
D. what will be the increase in operating
income
resulting from this decision?
A.78.75.000]/3.000 . $261.000 + 51. $222. $207.
3. $291.000*(309 .000 per year.000 .Relevant Costs for Decision Making
12-31
The Western Company is considering the addition of a new product to its current
product lines.Relevant Costs for Decision Making
12-32
49. $240.
B.
The expected cost and revenue data for the new product are as follows:
If the new product is added to the existing product line. the contribution margin of the other existing product lines is
expected to
drop $78.000. then sales of existing
products will
decline. Therefore.Chapter 12 . If the new product is added next year. Which lowest selling price per unit could be charged for the new product that
would still
make it economically desirable to add the new product?
A.
B. $183.50) .000
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2
Chapter 12 .
D.000.000.
C.

000 decrease.000 increase.000 decrease.Relevant Costs for Decision Making
12-33
50. The
company's total
fixed factory overhead cost would not be affected by this decision.000 increase.
B. $145. $170.
C.240. How many units of Product J would have to be sold
next year for
. If Bingham chooses to discontinue Product J. $25.000(#71) + 30. $145. $315. $120.000 .000 increase in
the contribution
margin of other product lines.000
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2
51.000 increase.000 increase in
the contribution
margin of other product lines.(1. Assume that discontinuing Product J would result in a $30. If the company discontinues Product J.000 increase.
-25. $5.000 + 180.000 decrease.future if the product is produced. what will be the change in
annual
operating income due to this decision?
A.
C.000) + 195. Assume that discontinuing the manufacture and sale of Product J will not
affect the sale of
other products. $145.600.000 .
B. Bingham is re-examining all of its products and
is trying to
decide whether or not to discontinue the manufacture and sale of Product J.960.000 decrease.
Chapter 12 .
D. what
will be the
change in operating income next year due to this action?
A.
D. Assume that discontinuing Product J would result in a $100.000
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2
Chapter 12 .Relevant Costs for Decision Making
12-34
52.
.

53.
Hadley needs 5.000 + 100. Because of a decline in
sales. This idle capacity
could be used
by the company to make.000)/(400.
D.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
Chapter 12 .
C.000)
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2
Hadley.10 per unit. the
component is being
purchased from an outside supplier at $7. What would be the change in the company's overall annual operating income
that would
result from making the component.125 units. 2. the company
has 10.10 + 18.000)]*5. 15.the company to be as well off as if it just dropped Product J and enjoyed the
increase in
contribution margin from other products?
A.000 per
year.500 units.000 increase.500 units.000/5.(4.000 decrease. $14. 11. $5.000 + 180. $1.
D.
C.
B.000
per year. At present.
(195. one of the components used in its
production process.000 increase. rather than buy. which would be allocated to this part.50 per unit.
B.000 machine hours of idle capacity available each year. and additional supervisory costs would be
$18.000 decrease. $17. Inc.000(CM from #71)/10.000 units of this component each year. Variable production cost for
the
component would be $4. Already existing fixed costs. makes a line of bathroom accessories. rather than buying it?
A.50 . amount
to $300.Relevant Costs for Decision Making
12-35
. 16.
[7.875 units.

600 decrease.
Chapter 12 .000 units of a certain component each year for
use in one of
its products. Assume that there is no other use for the capacity now being used to produce
the component. The cost per unit for the component at this level of activity is as
follows:
Rodgers has received an offer from an outside supplier that is willing to provide
27.54.
C.
B. Assume that direct
labour is a
variable cost. $17.000. $19.
D.
D. $124. $20.
[(4.000
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2
The Rodgers Company makes 27.500 increase.000 decrease.000.
B.000.25] * 27. If Rodgers Company were to purchase the components rather than
making them
internally.80) . what would be the impact on the company's annual operating income?
A.000 units of
this component each year at a price of $25 per component. $81.50 .Relevant Costs for Decision Making
12-36
55.
(7.)
A. $18.20 + 12 + 5.
and the total fixed manufacturing overhead of the company would not be affected
by this
decision.000. $94. What would the annual cost of additional supervision have to be in order for
Hadley to be
economically indifferent to making or buying the component? (Assume all other
conditions
stay the same.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
.000 increase.4. $237.10)*5.
C.

[22 + (35. How much of the unit product cost of $59.Relevant Costs for Decision Making
12-37
Aholt Company makes 40. even if the part were purchased from the outside supplier. $18. If the company accepts this offer.56. the facilities now being used to make the
part could be
used to make more units of a product that is in high demand.90 of the fixed manufacturing overhead cost being
applied to the part
would continue. $18. $21.100 of
annual fixed manufacturing overhead would be avoided.
C. $21.
57.000 units per year of a part that it uses in the products
it
manufactures.25] * 27.000 per year. $21.800 per year. However. all direct labour cost of the
part would be
avoided.400 decrease. what would
be the impact on annual operating income due to accepting the offer?
A.900 decrease. The additional
contribution margin
on this other product would be $264.
If the part were purchased from the outside supplier.400 increase.100 + 64800)/27.
If Rodgers
chooses to buy the component from the outside supplier under these
circumstances.000 .
B.20 a
unit.
D. Assume that if the components were to be purchased from the outside
supplier.900 increase.90 is relevant in the decision of
whether to make
. This
fixed
manufacturing overhead cost would be applied to the company's remaining
products.000
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2
Chapter 12 . The unit product cost of this part is computed as follows:
An outside supplier has offered to sell the company all the parts that Aholt needs
for $46. and the facilities now
being used to
make the component would be rented to another company for $64. $35.

Relevant Costs for Decision Making
12-43
67.
B.7 .
D. C. Which product makes the MOST profitable use of the milling machines?
A.3. Product C.55.
B.5 = $6. $15.
D.
C. B. C. B.1. Product A.
CM/DLH for A.
D.
22.
C. A.1.600 .67. B. 10/1. Product D. B.
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 3
68.100 minutes remaining to spend
on product A.Chapter 12 . in which
order should the
company produce the three products?
A.
Since there is still demand for this product therefore spend up to $4. What maximum amount (rounded to the nearest whole cent) should the
company be willing
to pay for one additional minute of milling machine time if the company has made
the best use
of the existing milling machine capacity?
A.
see #87 CM/min.
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 3
The Madison Company produces three products with the following costs and
selling prices:
Chapter 12 .
C. C. C.000*1.5 . Product B. A. $11.Relevant Costs for Decision Making
12-44
69. A. B.
B.000*2.000*2. $0.00. A. 8/2 = $4
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 3
. $4.545/minute.1 = 12.00. If the number of direct labour hours is the production constraint. C = 9/1 = $9.

C.000 spindles of yarn are produced that can either be sold outright
or processed
into afghans.000 decrease. The
spindles of yarn can
then be sold directly to stores.000 spindles of yarn?
A. $16.5 = $3. B = 10/2 = $5.
CM/mh A= 9/4.(9 + 5)]*4.000 increase. A. A. If the number of machine hours is the production constraint. C.
B.Relevant Costs for Decision Making
12-45
Austin Wool Products purchases raw wool and processes it into yarn.
C.
C.12) .000 decrease. B. $24. C = 8/2.
D. $24. what will be the
change in the
monthly net operating income as compared to selling 4.
[(32 .000 afghans each month. C.
Each afghan requires one spindle of yarn. or they can be used by Austin Wool Products to
make afghans. A. $16.
D.
B. B. Current cost and revenue data for the
spindles of yarn
and for the afghans are as follows:
Each month 4.5 = $2. If Austin chooses to produce 4.20
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 3
Chapter 12 .000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
. B. C.70. B. A. in which order
should Madison
produce the three products?
A.
71.000 increase.

000 afghans and zero spindles of yarn the total
contribution
margin would be closed to:
A. $8.600).
B. Each product may be
sold at the
split-off point or processed further. $40.000.9)
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2
Dowchow Company makes two products from a common input.
45.8 . $24.
B.
C.400.Relevant Costs for Decision Making
12-46
72.600
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 1
Learning Objective: 2
.000 .
D.600.
D. ($3.000.26.600. If Austin produced and sold 4.000. What is the net monetary advantage (disadvantage) of processing Product X
beyond the
split-off point?
A.000. Joint processing
costs up to
the split-off point total $38.000*(32 .Chapter 12 .
C. The company allocates these costs to the
joint products
on the basis of their total sales values at the split-off point. $60.000 . $27. Data concerning these products appear
below:
73.400 a year. $22.
4. $1.22.

what will
happen to the markup under absorption costing?
A. (Appendix 12A) Under time and material pricing.
C.Relevant Costs for Decision Making
12-49
78.
B. It will increase. Option C
D. It will remain the same. including salary and fringe benefits. A loading charge.
D. the material loading charge
includes
which of the following items?
A. A charge for ordering and handling inventory items. Option D
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 4
77. A profit element.
D.
C. (Appendix 12A) Holding all other things constant. Only the direct costs of the employee.D. (Appendix 12A) Under time and material pricing. what is(are) included in the
time
component?
A. Option D
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 4
79. It will decrease.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 4
Chapter 12 . The effect cannot be determined. if the unit sales increase.
B. Option A
B. Option B
C.
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 4
.

and administrative expenses each year?
A.000.
D.Relevant Costs for Decision Making
12-50
80. The target cost is the anticipated selling price less the desired profit.'s
Product A:
The company uses the absorption costing approach to cost-plus pricing.Chapter 12 .
0.60*(10.
C.
C.
B. $200.000
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 4
Chapter 12 . $240. Inc.000. The technique is most useful in the manufacturing stage of a product. (Appendix 12A) Kircher.000. $300.000.
B. the anticipated selling price of a product determines the
maximum
allowable cost for the product. Effective target costing is an integral part of continuous improvement (Kaizen
costing) as a
management philosophy. manufactures a product with the following costs:
.
what are the total selling. general. In target costing.000*50) .
D.400.
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 4
81.000*.Relevant Costs for Decision Making
12-51
82. $140.240. (Appendix 12A) Which of the following statements is NOT consistent with
target costing?
A. Based
on these data. (Appendix 12A) The following information is available on Bruder Inc.15 .

000 in this product and expects a return on investment of 9%.200 in total for the year.36. The company
has invested $220.03. $93.90.
.
B. $86.
D. The target
selling price based on the absorption costing approach would be closest to which
of the
following?
A.
C.000 in this product and expects a return on investment of
15%. $85.60.
the unit product
cost of a particular product is $61. Based on budgeted sales of 34. The
pricing
calculations are based on budgeted production and sales of 81. The
company has
invested $400.182.
D. general. and
administrative
expenses for this product are budgeted to be $809.000 units next year.80.50*(1
+.50.
Product Cost = 24. $71. The company's selling. Inc.166.
B.31.000*2 + 1. $120.2836%. uses the absorption costing approach to costplus pricing to
set prices for its products. $67. The
target selling
price for this product based on the absorption costing approach would be closest
to which of the
following?
A. (Appendix 12A) Magner.15) +
81. $72.000 units per
year.400]/(81.10 + 1.000*.Relevant Costs for Decision Making
12-52
83. $53.
C.000 = 55.302836)
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 4
Chapter 12 .90 + 13.67.The company uses the absorption costing approach to cost-plus pricing.600/81. Markup =
[(220.90 + 2.50) = 30.66.29.000*55. Selling price = 55.

000 in this product and expects a return on
investment of 12%.
D.000 calculators each year. The company requires a 20% rate of return on investment on all new
products.
(360.33. $23. Based on budgeted sales of 86. To compete effectively.000*. In
order to produce and sell 30.
C.850. $16.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 5
Chapter 12 .
(30.000)/(86. The company's selling.50. the calculator could not be
priced at more
than $40. (Appendix 12A) Straus Company.000. general. a manufacturer of electronic products.000*40 .50.33.
D. 29.8%.000 in total
for the year.000 units
next year.60)
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 4
90.Relevant Costs for Decision Making
12-59
.8%.247. What would be the target cost per calculator?
A. 12. 17.12 + 1.
B.
and
administrative expenses for this product are budgeted to be $1.20)/30. $34.000*.
B.000*81.4%.Relevant Costs for Decision Making
12-58
89.0%. the unit
product cost of a particular product is $81. The
company has invested $360. $28. the company would have
to make an
investment of $850. The
markup on absorption cost for this product would be closest to which of the
following?
A.247.Chapter 12 . (Appendix 12A) Lacy Corporation uses the absorption costing approach to
cost-plus
pricing to set prices for its products.
C.60.
wants to
introduce a new calculator. 18.

10)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 4
Chapter 12 .500. $43.Relevant Costs for Decision Making
12-60
93.00. The material loading charge is 15% for ordering.000*. would
like to introduce a new electronic watch into the market. $410.
C. $260. The time
rate is $25 per
hour. (Appendix 12A) Watkins Company uses time and material pricing. $64. $25.
B. The time
rate is $30 per
hour.
D. what would be the total charge
for a job that
requires 8 hours of labour time and $150 in parts?
A. handling.75.
(20. $430.25)/20.000 investment.
C. The plan is to produce and sell 20. (Appendix 12A) Timax Company. $490.91. $39. handling.
8*25 + 150 + 150*(. Given these data. what would be the
total charge for a
.00. This
would require
a $500.
B. and storing parts
and 10% for
the desired profit on materials.000
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 5
92. To compete effectively. What would be the target cost per watch?
A.30 + . Given these data. a manufacturer of moderately priced time
pieces.
the watch
could not be priced at more than $50. and storing
materials and 25%
for the desired profit on these materials. The company requires a return on
investment of 25% on
all new products.00.000 watches each year.
D. (Appendix 12A) Dresser Company uses time and material pricing. The material loading charge is 30% for ordering.000*50 .

C.3123)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 4
Eckert Company uses the absorption costing approach to cost-plus pricing to set
prices for its
products.25)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 4
Dickson Company makes a product with the following costs:
The company uses the absorption costing approach to cost-plus pricing.296. 96.800 in total for the year.40. $110.000 units per
year. (Appendix 12A) The target selling price based on the absorption costing
approach is closest
to which of the following?
A.000*.000 in this
.2%.Relevant Costs for Decision Making
12-61
94.
Chapter 12 .
65*(1 +.15 +
60.20 + 22.000)/(60.000*65)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 4
95.
Product cost = 18.000*1.90 + 1. Based on budgeted sales of 18. $190.10 + 1. 31. the unit product
cost of a particular
product is $60.95.
The company has invested $320. $214.job that requires 3 hours of labour time and $80 in materials?
A.
D.0%. and administrative expenses
for this product
are budgeted to be $370.89.30 + 2. (Appendix 12A) The markup on absorption cost is closest to which of the
following?
A.30.
C. 15.
D.50.
B.104.000 = 65.15 + . $85.
D. general.0%.
B.000/60. The
pricing
calculations are based on budgeted production and sales of 60. $182. $202.
C.
B. $84.
3*30 + 80 + 80*(. Markup =
(320. 30. The company's selling.000 units next year. $56.5%.
Direct labour is a variable cost in this company.000 in this product and expects a return on
investment of 15%. The company has invested
$260.

34.0%. $82. Costs associated with the new
product would be:
The company requires a 20% return on the investment in all products.
. 11. 36.
B. (Appendix 12A) The markup on absorption cost for this product would be
closest to which
of the following?
A.800)/(18. 45.000 would be
necessary to produce
and sell 40.40)
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 4
97.7%.
D.
D.59.04.000*60.1%.product and expects a return on investment of 11%.1%.
B.Relevant Costs for Decision Making
12-62
96. (Appendix 12A) The target selling price based on the absorption costing
approach for this
product would be closest to which of the following?
A.
Chapter 12 .
C.
(260. $81.
C. The
company uses the
absorption costing approach to pricing. $110. $67.11 + 370.76.367365)
Bloom's Level: Apply
Difficulty: Easy
Learning Objective: 4
Raymond Company estimates that an investment of $800.00.40*(1 +.
60.000*.000 units of Product S each year.

TRUE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 1
104.Relevant Costs for Decision Making
12-65
101.5949) from calculations in #121
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 4
True / False Questions
102. Future costs that do NOT differ among the alternatives are NOT relevant in
a decision. One of the dangers of allocating common fixed costs to a product line is that
such
allocations can make the line appear less profitable than it really is.Relevant Costs for Decision Making
.
TRUE
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 2
103.
C.
D.00. $32. $26.
FALSE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 1
Chapter 12 . $22.
18*(1 +. $28.67.71.Difficulty: Medium
Learning Objective: 4
Chapter 12 . (Appendix 12A) The target selling price for one unit of the new product is
closest to which
of the following?
A.50. Variable costs are always relevant costs.
B.

If by dropping a product a firm can avoid more in fixed costs than it loses in
contribution
margin.
TRUE
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 2
. The cost of resources that has no alternative use in a make or buy decision
has an
opportunity cost of zero. Only the variable costs identified with a product are relevant in a decision
concerning
whether to eliminate the product or not.
TRUE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 2
110.12-66
105.
TRUE
Bloom's Level: Remember
Difficulty: Easy
Learning Objective: 1
107.Relevant Costs for Decision Making
12-67
109. A sunk cost is a cost that has already been incurred and cannot be avoided
regardless of
what action is chosen.
TRUE
Bloom's Level: Remember
Difficulty: Easy
Learning Objective: 1
106.
TRUE
Bloom's Level: Remember
Difficulty: Easy
Learning Objective: 2
108. The book value of old equipment is NOT a relevant cost in an equipment
replacement
decision. An avoidable cost is a cost that can be eliminated (in whole or in part) by
choosing one
alternative over another. then the firm is better off economically if the product is dropped.
FALSE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 2
Chapter 12 .

it is profitable to continue processing a joint product
after the
split-off point so long as the incremental revenue from further processing
exceeds the
incremental costs of further processing. Joint production costs are relevant costs in decisions about what to do with
a product from
the split-off point onward in the production process.
FALSE
Bloom's Level: Understand
Difficulty: Hard
Learning Objective: 3
112.
FALSE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 2
116. All other things equal. holding
all other things constant. (Appendix 12A) The absorption costing approach to cost-plus pricing will
result in
attaining the company's required rate of return only if forecasted unit sales are
realized.
TRUE
.
FALSE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
115. Two or more different products that are manufactured in the same
production period are
known as joint products.
FALSE
Bloom's Level: Remember
Difficulty: Easy
Learning Objective: 1
Chapter 12 .111.
TRUE
Bloom's Level: Understand
Difficulty: Easy
Learning Objective: 2
114.Relevant Costs for Decision Making
12-68
113. Managers should pay little attention to bottleneck operations because they
have limited
capacity for producing output. Opportunity costs are recorded in the accounts of an organization.

Required:
a) How much of the unit product cost of $56. (Appendix 12A) If a company sells a product for less than its budgeted unit
product cost
under absorption costing. all of the direct labour cost
of the part
would be avoided.10 of the fixed manufacturing overhead cost that
is being
applied to the part would continue.000 per year.
This fixed manufacturing overhead cost would be applied to the company's
remaining products. the anticipated competitive market price of
a product
determines its maximum allowable product cost. the facilities now being used to make the
part could be
used to make more units of a product that is in high demand. $5. then the company will lose money.Relevant Costs for Decision Making
12-70
121. If the company accepts this offer.70 is relevant in the decision of
whether to make or
buy the part?
.
TRUE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 5
Chapter 12 .80 a
unit.Chapter 12 .
If the part were purchased from the outside supplier.
FALSE
Bloom's Level: Understand
Difficulty: Medium
Learning Objective: 4
122. (Appendix 12A) In target costing. Foster Company makes 20. The additional
contribution margin
on this other product would be $44. even if the part were purchased from the
outside supplier.Relevant Costs for Decision Making
12-71
Essay Questions
123. However. The unit product cost of this part is computed as follows:
An outside supplier has offered to sell the company all the parts that Foster
needs for $51.000 units per year of a part that it uses in the
products it
manufactures.

The
equipment would have a five-year useful life (the company uses straight-line
depreciation) and
a $50. The Hyatt Company is trying to decide whether it should purchase new
equipment and
continue to make its subassemblies internally or if production should be
discontinued and the
subassembly purchased from an outside supplier.000 units required each
year?
Chapter 12 .000 salvage value.
Alternatively. the subassemblies could be purchased from an outside supplier.
.
The supplier has
offered to provide the subassemblies for $9 each under a five-year contract.Relevant Costs for Decision Making
12-73
124.b) What is the net total dollar advantage (disadvantage) of purchasing the part
rather than
making it?
c) What is the maximum amount the company should be willing to pay an outside
supplier per
unit for the part if the supplier commits to supplying all 20.
New equipment for producing the subassemblies can be purchased at a cost of
$400.Relevant Costs for Decision Making
12-72
a) Relevant cost per unit:
b) Net advantage (disadvantage):
c) Maximum acceptable purchase price:
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2
Chapter 12 .000.

000 subassemblies are needed each year.
Bloom's Level: Analyze
.00 per unit general overhead cost is not relevant to the decision. the company should purchase the
subassemblies
from the outside supplier. Prepare an analysis
of the two
alternatives and make a recommendation to the management of the company of
the appropriate
course of action.000 per year) and direct materials
cost per unit
would not be affected by the new equipment.000 subassemblies per year. This
cost will continue
regardless of which alternative the company selects.Relevant Costs for Decision Making
12-74
The $2. The costs are based on a current activity level of
40.
The cost of supervision is relevant because this cost can be avoided by
purchasing the
subassemblies.000
subassemblies per year:
The new equipment would be more efficient and would reduce direct labour costs
and variable
overhead costs by 25%.
Chapter 12 . The cost of the new equipment is relevant
because the new
equipment will not be purchased if the company decides to accept the outside
supplier's offer. Supervision cost ($30.
At the level of 40. The company's total general company
overhead
would not be affected by this decision. The depreciation of $0.90
per unit is not a
relevant cost because it represents a sunk cost (in addition to the fact that the old
equipment is
worn out and must be replaced). The company has no other use for
the space now
being used to produce the subassemblies.
Required:
Assume that 40. Assume direct labour is a variable cost.Hyatt Company's present costs per unit of producing the subassemblies
internally (with the old
equipment) are given below.

Product C
should be sold at
split-off. J. Joint
production costs of
$92.
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
Chapter 12 .
Data for Benjamin's operations for the current year are as follows:
Product R can be processed beyond the split-off point for an additional cost of
$26.
Each product may be sold at the split-off point or be processed further.Relevant Costs for Decision Making
12-75
125. Product J can be processed beyond the split-off point
for an
additional cost of $38.Relevant Costs for Decision Making
12-76
.000 per year are allocated to the products based on the relative number of
units produced.000.000 and can
then be sold for $105. Product C can be
processed
beyond the split-off point for an additional cost of $12. Benjamin Signal Company produces products R.000. and C from a joint
production process.
Required:
Which products should be processed beyond the split-off point?
Products R and J should be processed beyond the split-off point.000 and can then be sold for $117.000.Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
Chapter 12 .000 and can then be sold
for $57. Joint production costs are not relevant to the decision to sell at split-off
or to process
further.

The analysis of the alternatives appears below:
Therefore. and R from a joint production
process.
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
Chapter 12 . the net disadvantage to purchasing and using the new machine would
be $55.
Required:
Compute the total advantage or disadvantage of using the new machine instead
of the old
machine over the next four years. Product Q
should be sold at
split-off. Joint production
costs of
$81. Madison Optometry is considering the purchase of a new lens grinder to
replace a machine
that was purchased several years ago. Product Q can be processed beyond the split-off point
for an
additional cost of $35. Joint production costs are not relevant to the decision to sell at split-off
or to process
further.Relevant Costs for Decision Making
12-77
127.000
.000 and can then be sold for $65.126.000 and can then be sold for
$25. Bowen Company produces products P.000.000.
Required:
Which products should be processed beyond the split-off point?
Products P and R should be processed beyond the split-off point.000 and can
then be sold for $50.
Data for Bowen's operations for the current year are as follows:
Product P can be processed beyond the split-off point for an additional cost of
$10. Selected information on the two machines
is given below:
Ignore income taxes and the time value of money in this problem. Q. Product R can be
processed beyond
the split-off point for an additional cost of $6.000 per year are allocated to the products based on the relative number of
units produced. Each
product may be sold at the split-off point or be processed further.000.

An order has been received from an overseas customer for 2. What would be the opportunity cost of each unit
delivered to the
overseas customer?
c) Suppose there is not enough idle capacity to produce all of the units for the
overseas customer.
Required:
a) Suppose there is ample idle capacity to produce the units required by the
overseas customer.
Direct labour is a variable cost in this company.
and the special discounted price on the special order is $66.300 units for
regular customers.Relevant Costs for Decision Making
12-78
128.90 per unit. Juett Company produces a single product.10 less per unit on this order than on
normal sales. By how
much would
this special order increase (decrease) the company's operating income for the
month?
b) Suppose the company is already operating at capacity when the special order
is received
from the overseas customer.
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
Chapter 12 . The cost of producing and selling
a single unit
of this product at the company's normal activity level of 70. The
variable selling
and administrative expense would be $1.000 units per month is
as follows:
The normal selling price of the product is $72. What would be the minimum acceptable price per unit for the
special order?
.10 per unit.000 units to be
delivered this
month at a special discounted price.
and accepting the special order would require cutting back on production of
1. This order would have no effect on the
company's normal
sales and would not change the total amount of the company's fixed costs.000 higher than the total cost of using the old
machine.because its total cost is $55.

129. When Mr. Ding L. Berry, president and chief executive of Berry, Inc., first
saw the
segmented income statement below, he flew into his usual rage: "When will we
ever start
showing a real profit? I'm starting immediate steps to eliminate those two
unprofitable lines!"
*These traceable expenses could be eliminated if the product lines to which they
are traced
were discontinued.
Required:
Recommend which segments, if any, should be eliminated. Prepare a report in
good form to
support your answer.
A segmented income report, without the allocation of common fixed expenses,
will provide the
basis for deciding which segments to drop.
The only segment that possibly should be eliminated is segment W, which shows
a negative
segment margin of $2,000.

130. Northern Stores is a retailer in British Columbia. The most recent monthly
income
statement for Northern Stores is given below:
Northern is considering closing Store I. If Store I is closed, one-fourth of its
traceable fixed
expenses would continue to be incurred. Also, the closing of Store I would result
in a 20%
decrease in sales in Store II. Northern allocates common fixed expenses on the
basis of sales
dollars and none of these costs would be saved if a store were shut down.
Required:
Compute the overall increase or decrease in the operating income of Northern
Stores if Store I
is closed.
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making
12-82

131. The Anaconda Mining Company currently is operating at less than 50% of
practical
capacity. The management of the company expects sales to drop below the
present level of
15,000 tonnes of ore per month very soon. The selling price per tonne of ore is
$2, and the
variable cost per tonne is $1. Fixed costs per month total $15,000.

Management is concerned that a further drop in sales volume will generate a loss
and,
accordingly, is considering the temporary suspension of operations until demand
in the metals
markets returns to normal levels and prices rebound. Management has
implemented a cost
reduction program over the past year that has been successful in reducing costs.
Nevertheless,
suspension of operations appears to be the only viable alternative. Management
estimates that
suspension of operations would reduce fixed costs from $15,000 to $5,000 per
month.
Required:
a) Why does management estimate that fixed costs will persist at $5,000 per
month although the
mine is temporarily closed?
b) At what sales volume should management suspend operations at the mine?
a) Some fixed costs will continue to be incurred despite the temporary closing of
the mine. Key
employees cannot be discharged because these employees will seek
employment elsewhere and
replacing them could prove to be quite costly. A skeleton staff would be needed
to perform
some administrative functions. Additionally, the maintenance of building and
equipment would
need to continue to prevent damage that would be costly to repair. Taxes and
insurance would
continue to be paid during the shut-down period.
b) Suspension of operations would be desirable when sales volume drops below
10,000 tonnes
as shown below:
Each tonne extracted contributes $1.00 per tonne towards fixed costs:
Sales volume necessary to recover $10,000 of fixed costs:

132. Kramer Company makes 4,000 units per year of a part called an axial tap
for use in one of
its products. Data concerning the unit production costs of the axial tap follow:
An outside supplier has offered to sell Kramer Company all of the axial taps it
requires. If
Kramer Company decided to discontinue making the axial taps, 40% of the
above fixed
manufacturing overhead costs could be avoided. Assume that direct labour is a
variable cost.
Required:
a) Assume Kramer Company has no alternative use for the facilities presently
devoted to
production of the axial taps. If the outside supplier offers to sell the axial taps for
$65 each,
should Kramer Company accept the offer? Fully support your answer with
appropriate
calculations.
b) Assume that Kramer Company could use the facilities presently devoted to
production of the
axial taps to expand production of another product that would yield an additional
contribution
margin of $80,000 annually. What is the maximum price Kramer Company
should be willing to
pay the outside supplier for axial taps?
Chapter 12 - Relevant Costs for Decision Making
12-85

a) The analysis of the alternatives follows below:
* 40% x $20
The company should make the part rather than buy it from the outside supplier
because it costs
$4 less under that alternative.
b) The maximum acceptable price is $81 because that is the cost to the company
of making the
part itself when the opportunity cost is included:
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2

Chapter 12 - Relevant Costs for Decision Making
12-86

133. Glocker Company makes three products in a single facility. These products
have the
following unit product costs:
Additional data concerning these products are listed below.
The mixing machines are potentially a constraint in the production facility. A total
of 5,900
minutes are available per month on these machines.
Direct labour is a variable cost in this company.
Required:
a) How many minutes of mixing machine time would be required to satisfy
demand for all four
products?
b) How much of each product should be produced, rounded to the nearest whole
unit, to
maximize operating income
c) Up to how much should the company be willing to pay, rounded to the nearest
whole cent, for
one additional minute of mixing machine time if the company has made the best
use of the
existing mixing machine capacity?

Chapter 12 - Relevant Costs for Decision Making
12-87

a) Demand on the mixing machine:
Total time required for all products: 6,500 minutes
b) Optimal production plan:
c) The company should be willing to pay up to the contribution margin per minute
for the
marginal job, which is $13.95.
Bloom's Level: Analyze

Difficulty: Hard
Learning Objective: 3

Chapter 12 - Relevant Costs for Decision Making
12-88

134. Holt Company makes three products in a single facility. Data concerning
these products
follow:
The mixing machines are potentially a constraint in the production facility. A total
of 25,800
minutes are available per month on these machines.
Direct labour is a variable cost in this company.
Required:
a) How many minutes of mixing machine time would be required to satisfy
demand for all four
products?
b) How much of each product should be produced, rounded to the nearest whole
unit, to
maximize operating income?
c) Up to how much should the company be willing to pay, rounded to the nearest
whole cent, for
one additional minute of mixing machine time if the company has made the best
use of the
existing mixing machine capacity?

Chapter 12 - Relevant Costs for Decision Making
12-89

a) Demand on the mixing machine:
Total time required for all products: 26,700 minutes
b) Optimal production plan:
c) The company should be willing to pay up to the contribution margin per minute
for the
marginal job, which is $5.15.

Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 3

Chapter 12 - Relevant Costs for Decision Making
12-90

135. Redner, Inc. produces three products. Data concerning the selling prices
and unit costs of
the three products appear below:
Fixed costs are applied to the products on the basis of direct labour hours.
Demand for the three products exceeds the company's productive capacity. The
grinding
machine is the constraint, with only 2,400 minutes of grinding machine time
available this
week.
Required:
a) Given the grinding machine constraint, which product should be emphasized?
Support your
answer with appropriate calculations.
b) If there is still unfilled demand for the product that the company should
emphasize in part a)
above, up to how much should the company be willing to pay for an additional
hour of grinding
machine time?
a) The product to emphasize can be determined by computing the contribution
margin per unit
of the scarce resource, which in this case is grinding machine time.
Product L should be emphasized because it has the greatest contribution margin
per unit of the
scarce resource.
b) If additional grinding machine time is used to produce more of Product L, the
time would be
worth 60 x $5 = $300 per hour.

136. Iaci Company makes two products from a common input. Joint processing
costs up to the
split-off point total $42,000 a year. The company allocates these costs to the joint
products on
the basis of their total sales values at the split-off point. Each product may be
sold at the split-off
point or processed further. Data concerning these products appear below:
Required:
a) What is the net monetary advantage (disadvantage) of processing Product X
beyond the
split-off point?
b) What is the net monetary advantage (disadvantage) of processing Product Y
beyond the
split-off point?
c) What is the minimum amount the company should accept for Product X if it is
to be sold at
the split-off point?
d) What is the minimum amount the company should accept for Product Y if it is
to be sold at
the split-off point?
a) & b)
c) & d)
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 1
Learning Objective: 2

Joint processing costs up to the split-off point total $200.
Required:
Which product or products should be sold at the split-off point. Harris Corp. and which product
or products
should be processed further? Show computations.
Product K should be sold after further processing beyond the split-off point. The
additional
processing costs and sales value after further processing for each product (on an
annual basis)
are:
The "Further Processing Costs" consist of variable and avoidable fixed costs. The
pricing
. (Appendix 12A) Qualls Company makes a product that has the following
costs:
The company uses the absorption costing approach to cost-plus pricing.Relevant Costs for Decision Making
12-93
137. Each product may be sold at the split-off point or processed further.
Products J and L
should be sold at the split-off point without any further processing.
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 1
Learning Objective: 2
Chapter 12 . manufactures three products from a common input in a joint
processing
operation.000 per year.Chapter 12 .Relevant Costs for Decision Making
12-94
138.
The company
allocates these costs to the joint products on the basis of their total sales value at
the split-off
point.

000 units per
year.
The company has invested $500.
Required:
a) Compute the markup on absorption cost.calculations are based on budgeted production and sales of 48.
b) Compute the target selling price of the product using the absorption costing
approach.
The company has invested $360.
Required:
a) Compute the markup on absorption cost.Relevant Costs for Decision Making
12-95
139.
a)
b)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 4
. (Appendix 12A) Riley Company makes a product that has the following
costs:
The company uses the absorption costing approach to cost-plus pricing.
b) Compute the target selling price of the product using the absorption costing
approach.000 in this product and expects a return on
investment of 15%.
a)
b)
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 4
Chapter 12 .000 in this product and expects a return on
investment of 15%. The
pricing
calculations are based on budgeted production and sales of 48.000 units per
year.

000 in this product and expects a return on
investment of 15%. (Appendix 12A) Trevor Company is contemplating the introduction of a new
product.Relevant Costs for Decision Making
12-96
140. can the
company be assured that no loss will be sustained on the new product? Explain. (Appendix 12A) Ritchie Corporation manufactures a product that has the
following costs:
The company uses the absorption costing approach to cost-plus pricing.000 = 22.
The company has invested $160.
Required:
a) Compute the markup on absorption cost.10
Bloom's Level: Apply
Difficulty: Hard
Learning Objective: 4
. The
pricing
calculations are based on budgeted production and sales of 37.
b) Compute the target selling price.Relevant Costs for Decision Making
12-98
141.
c) No.Chapter 12 . and a consequent loss for
the company on
the product. and costs turn out as
projected.000 units per
year. The
company has gathered the following information concerning the product:
The company uses the absorption costing approach to cost-plus pricing.700/37.
Fixed Overhead = 817. sales volume may be less than the 12.
Required:
a) Compute the markup on absorption cost.
resulting in
inadequate contribution margin to cover fixed costs.
b) Compute the target selling price of the product using the absorption costing
approach.Relevant Costs for Decision Making
12-97
Bloom's Level: Analyze
Difficulty: Medium
Learning Objective: 4
Chapter 12 .
Chapter 12 .
c) If the price computed in part b) above is charged.000 units projected annually.

Required:
a) Compute the markup on absorption cost. Gildersleeve Corporation manufactures a product that has the following
costs:
The company uses the absorption costing approach to cost-plus pricing.
Chapter 12 .
The company has invested $600.
b) Compute the target selling price of the product using the absorption costing
approach. The company has gathered the following information concerning the
product:
The company uses the absorption costing approach to cost-plus pricing.
b) Compute the target selling price. Inc.Chapter 12 .000 units of the
mower per year.
Required:
a) Compute the markup on absorption cost. the mower cannot be
priced above
$139.Relevant Costs for Decision Making
12-99
142. Management believes that in order to be competitive. The company requires a minimum return of 25% on its investments. Sales are expected to be
40.Relevant Costs for Decision Making
12-102
144. (Appendix 12A) Turnhilm.Relevant Costs for Decision Making
12-100
143.
. The
pricing
calculations are based on budgeted production and sales of 30.000 units per
year.000 in this product and expects a return on
investment of 15%.000. (Appendix 12A) Green Hornet Company is contemplating the introduction of
a new
product. is considering adding a small electric mower
to its product
line.
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 4
Chapter 12 .
Launching the new
product would require an investment of $8.
Required:
a) Compute the target cost of a mower.Relevant Costs for Decision Making
12-101
Bloom's Level: Apply
Difficulty: Medium
Learning Objective: 4
Chapter 12 .000.

000 units is
$100 per unit.50%. and TQM) are not possible.000 . Another option is
introducing
the product at the same price as the competition but lowering the required
minimum return on
investment. what specific options are available
to Turnhilm?
c) Suppose. Another option is to charge the same
price as the
competition and earn a higher return on investment for Turnhilm's shareholders. Specifically.000 units unless the higher cost includes more
features than the
competition. that is:
This option is more plausible than the first unless the company's cost of capital is
much higher
than the 25% required minimum return on investment. ($2. ($5. What other specific options are available to
Turnhilm?
Chapter 12 .000. A possible outcome of this strategy is price war which can
result in
significant losses for all including Turnhilm.
the demand will be less than 40.
c) One attractive option is price reduction to gain market share or force the
competition to lower
their price.000 units is only $80.
Most likely.b) Suppose the target cost calculated in part (b) above is not attainable using the
company's
current manufacturing facilities.Relevant Costs for Decision Making
12-103
a)
b) One option is for the company to go ahead and introduce the product but at a
higher price
than the competition and still desire a minimum return of 25% on its investments.000)).560.000))/40. using the company's current manufacturing facilities the average
cost of producing
the 40.
The resulting
return is about 29.50% (that is.000.000))/$8. The required minimum return is about 19. theory of constraints. the average cost of producing the
40. This option assumes cost reductions (using techniques such as
activity-based
management.
Bloom's Level: Analyze
Difficulty: Hard
Learning Objective: 5
Chapter 12 .000)).Relevant Costs for Decision Making
12-104
. A price of $130 can accomplish this latter goal (that is. Besides abandoning the idea.000 +
($80 x
40.($80 x 40.

This option may be
more attractive
to Juanita because most of the incremental costs can be saved as well as the
opportunity cost. Juanita has assembled the following
data to make the
decision:
Required:
a) Calculate the following in the context of Juanita's decision:
(i) Total sunk costs (if any)
(ii) Total differential or incremental costs (if any)
(iii) Total opportunity costs (if any)
b) What is your best estimate of the total cost to Juanita of earning an M. She has
applied for admission to the M.B.
Mexico.
Chapter 12 .A program at Dalhousie University.
she will
resign and move to Halifax.000 annually as a marketing specialist in Mexico City.
personal
growth.A. What specific additional information would you
need in order to
make a rational decision to pursue and successfully complete the MBA program
at Dalhousie?
Explain. This
may be
especially relevant if benefits from network of classmates are important to
Juanita. Juanita earns $68. enhanced reputation and network of classmates
Reputation of the Dalhousie MBA program in comparison to other programs.
degree if it will
take her 12 months to complete the program?
c). internet-based MBA from reputable universities). If accepted.
Feasibility of obtaining similar (or even superior) qualification using nontraditional means (for
example.000 (Juanita's annual salary forgone)
b) Total cost to Juanita of earning an MBA degree
c) Specific additional information required to make a rational decision includes:
Expected benefits from having an MBA degree.Relevant Costs for Decision Making
12-105
a)
(i) Total sunk costs are $600 (cost of two business suits purchased just prior to
resigning)
(ii) Total differential/incremental costs:
Note: The auto expenses are not differential or incremental because they remain
the same in
Mexico City and Halifax.B. Suppose you are Juanita.145.
Bloom's Level: Evaluate
Difficulty: Hard
. Nova Scotia.
(iii) Total opportunity costs are $68. Examples are increased salary.

what can the crossfunctional team do to
further reduce cost?
Chapter 12 . The difference multiplied by
300.89%
(i.000.Learning Objective: 1
Learning Objective: 2
Chapter 12 .Relevant Costs for Decision Making
12-107
a) Cost reduction target
(Note: The currently feasible cost averages to $166.Relevant Costs for Decision Making
12-106
146.000.
Benchmark the firm's production costs or activities to the best in its industry.
Outsource some of the activities in which the firm does not have competitive
advantage and that
are also not the firm's sources of competitive advantage.000 units
equals the total cost reduction target of $14.$41 million)/$45 million)))
c) Possible actions to further reduce the costs of production include
Eliminate or reduce non-value added activities. (($150 . is this a feasible product for iBurst Technology? Why or why not?
c) Whether the cost reduction target is feasible or not.67 per unit
($50.000 exceeds the total target cost of
$36.
.000.
b) If the cross-functional team believes the cost of the modem cannot be reduced
by any more
than 18%.e.000/300.67)/$150) or (($45 million .
The maximum attainable cost of reduction percentage of 18% is less than the
required cost
reduction percentage of 28% ($14 million/$50 million.)
b) Attainable cost
Decision: The product is NOT feasible for any of the following reasons:
The total attainable minimum cost of $41.000. (Appendix 12A) iBurst Technology is developing a high-speed modem to
connect
notebook computers with iSun's satellite-based data network.000.67 exceeds the average unit
target cost of
$120.000 units)
which exceeds the average target unit cost of $120.)
The maximum attainable cost reduction of $9 million is less than the required
cost reduction
target of $14 million.
The required return of 20% on sales exceeds the maximum attainable return on
sales of 8.000.$136. The crossfunctional team in
charge of the project has assembled the following information:
Required:
a) Given the above information calculate the cost reduction target.
The minimum attainable average unit cost of $136.

May consider reducing the required return on sale
.May consider redesigning the product or re-configuring the value-added
activities.